Interest Rate Reduction Won't Enable Renters to Buy

New York, NY, September 18, 2024-"The U.S. housing market is sharply divided between those who own and would-be buyers who can’t afford a home. The Federal Reserve’s widely expected rate cut next week will do little to close the gap between the two,” reports the Wall Street Journal.

“A reduction in short-term interest rates would directly translate to lower rates for home equity lines of credit, making it cheaper for millions of homeowners to tap into their housing wealth.

“On top of that, homeowners who bought in late 2023 or early 2024-when mortgage rates were higher-are taking advantage of the recent drop in borrowing costs. Applications for mortgage refinancings more than doubled from a year earlier in the week ended Sept. 6, according to the Mortgage Bankers Association. 

“For current home shoppers, mortgage rates have dropped from last year’s highs but not enough to offset other challenges in the market. Home prices are near record highs, inventory is limited in much of the country, and rising costs for home insurance and property taxes add to the expense.

“Prospective buyers have been slow to take advantage of the recent decline in mortgage rates. 

“‘Affordability still remains a problem,’ said Christine Cooper, chief U.S. economist at CoStar Group. ‘The price is high still.’ 

“The housing divide underscores the wealth gap between homeowners, who have benefited from several years of robust home-price appreciation, and renters, who are facing one of the least-affordable housing markets in decades.

“Home prices have climbed more than 50% since 2019, helping homeowners build wealth. Homeowners with mortgages had $17.5 trillion in equity in July, according to Intercontinental Exchange.  

“The mortgage outlook is improving: The 30-year fixed mortgage rate tumbled to 6.2% this month from a 23-year high of 7.79% last fall, according to Freddie Mac. That is in part because Fed officials are expected to reduce short-term rates by at least 0.25 percentage point at their Sept. 17-18 meeting, and investors expect additional cuts to follow.”