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Slashing rates, rising demand: What it all means for buyers

Mortgage rates hit two-year low after Fed's 50-point cut: how the housing market responds
New headshot of Pacaso Co-Founder and CEO Austin Allison
Austin Allison
September 23, 2024
I’m Austin, CEO and co-founder of Pacaso. 
The real estate market is seeing major shifts this month, driven by mortgage rate changes and ongoing supply-demand dynamics. Last week, the Fed cut rates by 50 basis points, dropping mortgage rates to their lowest in two years.Demand was already rising in September, with more buyers re-entering the market as rates were dropping. This creates more liquidity for the vacation home market and empowers buyers to act. At Pacaso, 50% of our homes already offer financing at 5% or lower, making luxury co-ownership more accessible and attractive for families.Curious to know more? I share some of my latest insights on the U.S. housing market below. We'll continue to check in with any new developments, and encourage you to contact us with any questions about a market of interest. See Pacaso’s available second home listings here.

Rates are falling

Mortgage rates continue to fall, with the contract rate on a 30-year fixed mortgage dropping by 14 basis points to 6.15% as of September 13., This marks the seventh consecutive week of declining rates — the longest streak since 2019. As rates fall, borrowing becomes more affordable for homebuyers. If this trend continues, it could have widespread effects on both demand and the broader housing market.

Homebuyers sprint back

With rates dropping, buyer demand is on the rise. Mortgage applications surged by 14.2% in just one week according to National Mortgage Professional. This uptick in demand is largely tied to sinking mortgage rates, with many buyers eager to take advantage of more favorable conditions. Importantly, these gains occurred before any anticipated Federal Reserve rate cuts, meaning demand could increase further as buyers who had been on the sidelines begin to re-enter the market.

Housing prices fluctuate

The drop in mortgage rates below 6% has the potential to drive demand, which could increase home prices in many markets. While high rates over the past year have slowed price growth, an influx of buyers competing for a limited number of homes could reverse this trend, especially in popular markets. Prices will likely fluctuate in response to these changing dynamics and some regions will see sharper increases than others.

Homebuilder sentiment

The U.S. is grappling with a significant housing shortage — we are short millions of housing units according to Harvard. High interest rates have hindered homebuilders, particularly smaller developers, by making financing for new projects more difficult. However, the recent decline in mortgage rates is boosting builder confidence. For the first time in six months, homebuilder sentiment has improved according to the Association of Home Builders and Wells Fargo, potentially spurring more construction and easing the tight inventory in the resale market.

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