What would a September Fed rate cut mean for mortgage rates?
Mphasis Digital Risk founder Jeff Taylor explains how that could impact homebuyers and why new builds may offer better value than existing homes.
To watch more expert insights and analysis on the latest market action, check out more Asking for a Trend.
Interest rate traders are price signaling at 25 basis point rate cut in September, according to the CME FedWatch. The 30-year fixed rate mortgage rate sits above 6.7% and has remained in that same narrow range for the last month. What could a possible September cut do for mortgage rates? Well, joining me now is Jeff Taylor, founder of Emphasis Digital Risk. Jeff, it is good to see you. So let's get right to that question. Uh Jeff, you know, if the Fed did cut in September, that would mean what for mortgage rates, Jeff?
Josh, thank you for having me tonight. Well, let's just take a look at what's happened over the last few days. August 1st, mortgage rates 30 year were about 6.875. Today they're around 6.5. So we already saw 37% percent basis points or 0.375, that is. And why do we see that? We saw that because the job the jobs report came in under an average of 35,000 jobs over the last three months, much lower than what people had expected. So the mortgage market tends to to to basically the mortgage market moves with the bond market as we all know. So we already saw 0.375 without a Fed rate cut. So if we did get a a a rate cut about 25%, then we'd be probably in around 6 and a quarter per 6 and a quarter percent. And I think that's when we could actually start to see uh maybe some refinance value coming in for people who have refinanced over 7%.
You know, Jeff, earlier this morning, uh Mohammed El-Erian, so president of course of Queens College, Cambridge, said a bigger rate cut uh could be in play in September. Take a listen.
Is it a lock for September? Yes. I think a 25 basis points cut is is a lock. A 50 point basis point cut is a possibility, not yet a probability, it's a possibility.
So Jeff, Mohammed there is saying it's a possibility we get a cut by 50 in September. Let's say that happened, Jeff. What would be the effect? What would be the impact on the mortgage market?
So, you know, let's go back and look at 2024. So before there was any rate cuts, right? You went from a 7.5 mortgage rate down to 6.17. And then we had four or three rate rate cuts covering 1% and the mortgage market went back up to 7 point and 4%. My point there is the mortgage market sort of moves, it does have move with Fed cut, but it also sort of moves where it thinks inflation and other key economic data factors, such as the jobs are also moving. So again, a Fed cut would help bring it down, but as I I just said, you know, sometimes it can be counter intuitive to the after Fed cuts where actually the mortgage rate market goes again. So we'll see what happens, but right now I wouldn't be surprised to see the mortgage market and mortgage rate somewhere in the about 6 and a quarter six to 6 and a quarter in the course of the next couple of months.
Rates are important, Jeff. So is inventory. What what do we see with supply right now?
So, you know, supply is actually what I was looking at some data the other day, I haven't seen this in a long time. Right now, the price of a newly built home is 8% lower, $412,000 the medium than existing home at $435,000. Now, a lot of that's because of builder incentives, 62% getting incentives. And the reason they're doing that is because the overall supply market is pretty healthy. Prices are starting to come down a little bit, but they're still pretty, you know, there's pretty pretty good supply out there. Um again, if I'm looking the market right now, I'd really be focusing on the new new homes right now versus the existing existing market for the reason that I just said as far as price affordability and being a little bit cheaper.
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