26/09/2024
Hello Future Home Buyers & Refinancers.
Sharing my perspective on the Fed Rate Cut and outlook ahead:
The Federal Reserve cut rates by 0.5%, bringing the effective Federal Funds Rate to 4.875% and the Prime Rate to 8%. 🔻
• The Federal Funds Rate is the interest rate banks are charged for overnight loans, determined by the Fed.
• The Prime Rate is the rate banks charge their most creditworthy customers.
(Quick math: Banks typically make a minimum profit margin of over 3% on every loan. 💼)
Before this decision, the market had already priced in a 0.25% cut during August. However, in the first two weeks of September, expectations shifted towards a 0.5% cut—and the market was right!
When the Fed officially announced the 0.5% cut, rates jumped unexpectedly. 📈 In our view, this was likely a knee-jerk reaction, as the market was trying to analyze the Fed’s comments for future predictions.
For the past two weeks, we’ve been advising our borrowers: “The rate cut is already priced in. Rates may rise when the Fed announces the cut on September 18th.” The real focus should be on the Fed’s comments and their guidance for the next meeting on November 6-7.
𝐓𝐡𝐞 𝐍𝐞𝐚𝐫 𝐅𝐮𝐭𝐮𝐫𝐞:
From the Fed’s comments, it’s clear they are confident in achieving a soft landing. Based on their guidance, we anticipate another 0.5% rate cut this year, followed by an additional 1% cut next year.
We expect the overall direction to remain downward. 🔽
𝐖𝐡𝐚𝐭 𝐓𝐡𝐢𝐬 𝐌𝐞𝐚𝐧𝐬 𝐟𝐨𝐫 𝐁𝐨𝐫𝐫𝐨𝐰𝐞𝐫𝐬:
• Borrowers may want to avoid paying points for a lower rate, as there is a high chase of refinancing at a lower rate in the near future December or next year.
• A temporary buydown could be a smart strategy, allowing borrowers to enjoy rates in the 3-4% range, with the option to refinance later. 🔄
Disclaimer: This is my personal opinion based on current market conditions. 📊
