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High mortgage rates make it difficult for potential homebuyers to enter the market.
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Mortgage rates could fall if the Federal Reserve cuts interest rates next year.
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Here are nine expert projections for when the Fed’s first rate cut will arrive.
High mortgage rates have effectively frozen the U.S. housing market. And while lower rates may be on the horizon, Americans may have to wait a while.
The average rate for a 30-year fixed-rate mortgage is above 7%, up from around 3% at the start of 2022. This has dissuaded potential first-time homebuyers from taking the plunge and made Existing homeowners reluctant to sell their homes and buy another: They prefer to stick with the superlow rates they’ve already locked in.
Meanwhile, the lack of people selling their homes has contributed to a shortage of housing inventory and helped prop up prices, which may not come down anytime soon. While these factors act as a deterrent to potential buyers, interest rates may not stay this high forever.
The Federal Reserve has raised interest rates to fight inflation, but many experts predict it will move more cautiously – and perhaps even cut rates – over the next 12 to 18 months in response to slowing inflation and the outlook of a weakening of the US economy.
While falling interest rates wouldn’t directly cause a decline in mortgage rates, the two tend to move in the same direction. That’s why prospective homebuyers would be wise to keep an eye on when the Federal Reserve’s first interest rate cut might arrive, even though rates are unlikely to return to the levels they were a few years ago.
Insider compiled nine recent expert predictions for when the first rate cut would arrive. The forecasts are listed in chronological order: experts who expect a rate cut soon are listed first.
As soon as the end of the year
In an interview Tuesday with Bloomberg Television, Bob Michele, chief investment manager at JP Morgan Asset Management, said the Fed could change course — perhaps before the end of the year — and start cutting interest rates.
“They will tell us they will keep rates higher longer until inflation reaches their target,” he said. “But the size of the slowdown we’re seeing across the board tells us we’ll probably still be in recession towards the end of the year, so they’ll be cutting rates by then.”
February
On Aug. 31, Morningstar senior U.S. economist Preston Caldwell wrote in a note that he expected the Fed to begin cutting interest rates in February.
“The Fed will pivot to monetary easing as inflation returns to its 2% target and the need to support economic growth becomes a major concern,” he wrote.
Not before April
Last month, David Einhorn, founder and president of hedge fund Greenlight Capital, wrote that he didn’t expect the Fed to cut interest rates until next year.
“We continue to believe the market is over-anticipating rate cuts and have extended this view to March 2024,” he said.
May
After the release of the August inflation report, KPMG US chief economist Diane Swonk wrote in a note that the Federal Reserve may not have stopped raising interest rates yet.
“The Fed needs quarters, not months, of fundamentally cooler inflation to cut rates. We’re not even close,” he wrote. “Our forecast for the first rate cut in May 2024 stands.”
Separately, according to CME Group’s FedWatch tool, which calculates the odds of different Fed interest rate movements based on what traders are doing in derivatives markets tied to those rates, there’s a 19% chance % of a rate cut in March. In May the odds rise to 82.3%.
Between April and June
In a Reuters poll of 97 economists conducted between September 7 and Tuesday, the prevailing forecast was that the Fed would not cut interest rates until the April-June period.
“Tightness in the labor and housing markets presents an upside risk to inflation,” Andrew Hollenhorst, chief U.S. economist at Citi, told Reuters. “This means that, in the absence of a recession, policy makers are likely to keep policy rates unchanged until 2024.”
The 2nd quarter of 2024
On a Sept. 7 episode of the “Goldman Sachs Exchanges” podcast, Goldman Sachs chief U.S. economist David Mericle said he expects the Fed’s first interest rate cut to occur in the second quarter of 2024.
“And so the best case scenario is that we will get back to 2%,” he said, regarding inflation. “But we’re definitely not there or even close enough. So it’s too early to say we’ve solved this problem.”
Between May and the end of 2024
On Monday, economists at some of North America’s largest banks said they expect the Fed to delay cutting rates until sometime between May and the end of next year.
“Given the demonstrated and expected progress on inflation, most committee members believe the Fed’s tightening cycle has run its course,” said Simona Mocuta, chief economist at State Street Global Advisors.
The second half of 2024
In a note Thursday, Vanguard’s global economics and markets team wrote that it doesn’t expect the Fed to begin cutting interest rates until the second half of 2024.
“We believe the catalyst for easing could be a recession or a decline in inflation while economic activity remains strong (a ‘soft landing’),” the team said.
Later next year
Jeff Morton, portfolio manager at DWS Group, said interest rate cuts are unlikely to come before next year.
“We have postponed our cut forecast to the end of next year, at the rate of one cut per quarter, barring any major recession,” he said.
Read the original article on Business Insider