What Homebuyers and Sellers Can Expect This Fall

This was originally published to Forbes on August 29, 2024.

The housing market is poised for a dynamic shift this fall, driven by recent declines in mortgage rates and the Federal Reserve’s anticipated rate cuts. This presents challenges for both buyers and sellers who want to time the market. Here’s what homebuyers and sellers can expect in the coming months:

Mortgage Rates: On the Decline, But the Ride is Bumpy

Mortgage rates have recently fallen to 6.5% for a 30-year fixed-rate mortgage, a meaningful decline from the peak of 7.8% in October of last year. This decline has led to the first year-over-year drop in monthly mortgage payments since 2020, which is welcome relief for potential homebuyers who have been struggling to afford a purchase. 

However, this dip in mortgage rates comes with a caveat.  It’s unlikely that rates will decrease significantly in the short term because financial markets have already priced in future declines in the Federal Funds Rate. The Federal Reserve is widely expected to begin cutting interest rates at its upcoming meeting on September 18. While this should theoretically lower mortgage rates further, the size and pace of these cuts will depend on incoming economic data about the strength of the labor market. Federal Reserve Chair Jerome Powell has stated that the time has come for rate-cuts and the Fed is prepared to adjust its policies depending on the data. If labor market data shows continued strength, the Fed will likely opt for a more gradual reduction in rates, which could lead to a slight increase in mortgage rates through the fall. On the other hand, if the labor market weakens, we could see more aggressive cuts, driving mortgage rates down even further.

For both buyers and sellers, the key takeaway is to stay informed. The way down for mortgage rates will likely be bumpy as economic data continues to roll in, and the Fed’s actions will play a significant role in determining the path for mortgage rates.

Homebuyers: Timing the Market Might Not Pay Off

Homebuyers may want to try to time the market, but getting the timing exactly right is difficult, if not impossible. On one hand, the recent drop in mortgage rates has made buying a home slightly more affordable, and there is potential for rates to decrease further if the Federal Reserve enacts aggressive rate cuts. On the other hand, the uncertainty surrounding whether rates will drop significantly more may lead some buyers to hesitate, waiting for clearer signals before making a move.

This hesitation is understandable. Many buyers are holding out for lower rates, reduced buyer agent fees given recent industry rule changes, or a drop in home prices. However, this strategy comes with risks. As the fall season progresses, competition among buyers could increase, particularly if rates do begin to fall further. This could lead to bidding wars, especially for desirable properties in low-inventory markets.

For those who are ready to buy now, it may be wise to get ahead of the herd. Locking in a mortgage rate at 6.5% today, while monitoring the Fed’s moves and the labor market, could be a good idea. If rates drop significantly, it’s possible to refinance later. Buyers should be aware that some sellers are already beginning to mark down prices, creating potential opportunities for negotiation.

Because mortgage rates are mostly out of a buyer’s control, homebuyers should instead focus on what is in their control, like finding a home that meets their needs and is within their budget. Reflect on your personal financial situation and monitor the market for new listings, so you are best prepared to make an offer when the time is right for you personally.

Home Sellers: Strategic Pricing is Key

Home sellers, on the other hand, are facing a different set of challenges. The fall market is traditionally slower, and given the hesitancy of buyers, the potential for price reductions is increasing. To avoid the need for a price drop, it’s crucial to price your home appropriately from the outset. Overpricing in the current environment could lead to extended time on the market and eventual markdowns, which can hurt your overall return.

Despite these challenges, there is still good news for sellers. Inventory remains relatively low, and well-priced, desirable homes are still attracting multiple offers. This is especially true in markets where inventory has been tight for some time. Sellers who present their homes well and price them competitively can still expect strong interest.

Another factor sellers should consider is the role of the buyer’s agent compensation in the negotiation process. Now that buyer’s agent compensation is no longer set by the seller, the offers a seller receives could have unique or novel stipulations about buyer’s agent compensation.

Stay in the Know

This fall, homebuyers and sellers alike will need to stay nimble and be prepared to act quickly as the housing market responds to changing economic conditions. For buyers, this may mean seizing opportunities before competition heats up or locking in favorable mortgage rates while they’re available. For sellers, it means pricing homes appropriately from the start and being open to negotiations about buyer agent pay. In an uncertain market, those who stay informed and plan strategically will be best positioned to succeed.