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Why Isn’t the Real Estate Market Moving After the Fed’s Rate Cut?

Did the Fed’s Rate Cut Really Help the Housing Market? With a recent rate cut, many expected a surge in buying power, yet housing prices haven’t budged. What’s causing this stall, and will another rate drop actually make a difference? Dive into the real factors behind today’s market stagnation and where things might be headed in today’s video.

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Today, we’re diving into a key question: If the Fed cut rates by half a point, why is the real estate market still stuck? The Federal Reserve lowered rates last month by half a percent, sparking hopes for a surge in buying power. But as we’ve seen, housing prices barely budged, leaving many wondering—what gives?

Here’s the puzzle. Lower rates typically mean more affordable mortgages, giving buyers a boost. But experts have long anticipated that if rates hit around 6%, home prices could jump, counteracting any real benefit. So far, we’ve yet to see that prediction fully play out. Freddie Mac reported that the average 30-year mortgage was 6.09% as of September 19, 2024. It’s an improvement, yet buyers haven’t returned in droves to drive up prices by 8-10% as some analysts predicted.

The real question becomes, if interest rate cuts aren’t triggering a market boost, what might? Today, let’s talk about where interest rates are likely headed into 2025 and whether these rate changes alone can solve our housing crisis. We’ll dive into Samantha Dell’s CNN article on why lower rates may not be enough and Moody’s economist Nick Villa’s insights on America’s need for affordable housing, not just high-end homes. Fannie Mae’s Chief Economist Doug Duncan also points out that rates alone won’t solve our supply issues. As Fed Chair Jerome Powell highlighted, lower rates can help influence housing demand, but they can’t force homeowners to sell.

The reality is we’re seeing a shortage in housing options. Even as rates dropped from 7.25% earlier this year to closer to 6%, they’re now inching back up to about 6.5%. That initial rate drop didn’t lead to a flood of new buyers, partly because inventory remains low and because other ownership costs—insurance, taxes, and maintenance—are rising, straining affordability.

Moody’s economist Nick Villa argues that we need more diverse housing options. While developers focus on high-end properties due to their higher returns, this has left the affordable housing segment underserved. For instance, Class A multifamily units make up over half of all new builds, while affordable Class B and C units have dwindled. It’s understandable why developers chase high returns, but affordable options are crucial, especially as the middle class grapples with rising costs.

Even with incentives to “build, baby, build,” developers face obstacles like labor shortages, high regulatory costs, zoning limits, and pricey materials. According to Wells Fargo, the mortgage rate may reach the 5.5% range by the end of 2025, which could ease our supply issues. But until rates fall below 6%, or ideally closer to 5%, inventory constraints likely won’t resolve quickly.

Let’s also discuss the current market conditions here in Los Angeles. According to Redfin, inventory is up 40% across L.A. County from last year, with pending sales down by 27%. In the 91326 area in Porter Ranch—covering a range of price points from the $500,000s to over $4 million—inventory has nearly tripled. Properties over $1.5 million are sitting longer on the market, while most buyers are focusing on homes below that threshold. Sellers, if you’re not priced competitively, your home might sit. Many homeowners are holding on to old comp data, but realistically, you may need to price 3-5% under recent comps to spark buyer interest.

So, with rates unlikely to be the magic bullet, what else will it take to get the market moving? If you have thoughts on what’s happening in your area, drop them in the comments. I’m Scott Himelstein with the Scott Himelstein Group, your Los Angeles Realtor, here to keep you updated on all things real estate in Southern California. Thanks for watching, and stay tuned for our next story!

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