The recent National Association of Realtors settlement isn’t the only thing that could have a big impact on the real estate market in Southwest Florida and around the country.
Will the bigger-than-expected 0.5% rate cut by the Federal Reserve last week help push already falling mortgage rates even lower? On Sept. 19, Federal Home Loan Mortgage Corp. officials said the standard fixed-rate mortgage averaged 6.09%, the lowest since February 2023, falling from 6.2% the previous week and well below last fall’s highest rate in two decades of 7.79%.
The secondary market lender’s website states the declining mortgage rates are “reviving purchase and refinance demand for many customers. While mortgage rates do not directly follow moves by the Federal Reserve, this first cut in over four years will have an impact on the housing market. Declining mortgage rates over the last several weeks indicate this cut was mostly baked in, but rates will likely fall further, sparking more housing activity.”
PJ Smith
Local experts had much the same response. Naples Area Board of Realtors President PJ Smith said local Realtors are excited by the Fed’s movement, even though there may not be an immediate impact on mortgage rates.
“Last year at this time, we were at 7.19%, and now, we are close to 6%,” Smith said. “As we know, mortgage rates do not necessarily mirror the Federal Reserve’s action, but we are hopeful that this will have a positive impact on our [local] housing market, as well as nationally. It may also increase refinancing and recasting of existing loans.”
Smith said she thinks many buyers priced out of the market because of insurance costs and mortgage rates could reenter the market.
“Summer sales have been a little sluggish, but that may also indicate we are normalizing back to a real season in our market versus the residual from the pandemic year-round high activity. First-time home buyers will most likely be the ones that benefit the most. We know the benefits of owning versus renting so our agents need to communicate how important this is to consumers to start building equity.”
She said lower rates may push buyers to jump off the sidelines, creating higher demand and more competition.
On the lending side, Tom Lytton, executive vice president and chief credit officer at FineMark National Bank & Trust in Naples, said while he anticipates a further drop in mortgage rates, it will not be in lockstep with the Fed lowering the interest rate.
Lytton explained the Fed only controls one thing—the discount rate that banks pay, which impacts banks’ cost of funds. But he noted mortgage rates are also influenced by other economic factors, including the 10-year bond market and mortgage-backed securities traded in the bond market.
Tom Lytton
“There’s a belief that when the Fed lowers rates, it lowers rates for every loan in the world,” Lytton said. “That’s the belief, there’s a concept, and that is simply not true.”
Lytton said he thinks there will be stabilization and mortgage rates could end up between the 5.5% and 6% territory in the next 18 months, which would be what he calls normal. He cautions buyers, especially first-time buyers, not to think they will ever see pandemic-level rates in the 3% range again.
For sellers with mortgages, many of whom have rates under 4%, Lytton said they probably “aren’t going to sell unless they have to move for a job or a growing family.”
“You have a lot of people with low-cost, low-rate mortgages that don’t want to sell,” he said. “They’re not going to upsize, they’re not going to move unless prices come down to a point where they say, ‘OK, now I really want that house’ and it makes sense for me to give up my 3.5% mortgage and go borrow money at 6%. So, rates dropping a little bit will help that, but that’s going to exist for a long time. There are going to be people with mortgages that are never going to see that rate again.”
