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It’s been a month since the Federal Reserve shifted from fighting inflation with high interest rates to supporting the job market with the first in what is expected to be a series of rate cuts.
The impact? It’s been pretty much as expected: a boost for stock market investors and so-so news for savers. But for prospective homebuyers, it’s brought more frustration: Mortgage rates have actually risen in recent weeks.
Catch up: Stock prices have continued to march higher, with the Standard & Poor’s 500 index up more than 22 percent for the year.
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Savers are getting squeezed as yields on online bank accounts, certificates of deposit, and money market mutual funds slide under 5 percent. Still, when adjusted for falling inflation, “real” returns remain higher than they were a year ago.
Perhaps the biggest surprise since the Fed cut its short-term lending rate by half a percentage point was the September jobs report. It showed a rebound in hiring that eased recession fears.
But the pickup also increased the likelihood that, with the job market on solid footing, the central bank will have the flexibility to lower borrowing costs gradually. That’s not what anyone looking to buy a home really wants to hear with mortgage rates well above 6 percent.
What’s happening: Mortgage rates, which fell in anticipation of the Fed’s move, have since reversed direction, reflecting expectations that the Fed would not rush additional rate reductions.
- The average 30-year fixed rate home loan was 6.6 percent on Wednesday, according to Mortgage Daily News, up from 6.1 on Sept. 17, the day before the Fed’s rate cut.
- Even though the current rate is well below the peak of 8 percent a year ago, affordability — the combination of sale prices and mortgage costs — is the lowest it’s been since at least the early 1980s, Goldman Sachs research shows.
Why it matters: With so many homeowners having locked down low-rate mortgages before the rise in rates, inventories of homes for sale are tight. That has kept prices rising.
- In Greater Boston, the median price of a single-family home rose 3.5 percent last month to $730,000, The Warren Group, a real estate data firm, reported on Wednesday. (The median is the price at which half the homes were more expensive and half were less expensive.) The number of homes changing hands edged up 2 percent.
- Statewide, the median home price jumped 6.2 percent, to $600,000, as sales fell 3.7 percent.
Some relief may be on the horizon, according to Cassidy Norton, Warren Group’s associate publisher.
- “The rapid rise in prices appears to be flattening compared to previous years, signaling a potential shift in market dynamics,” Norton said in a statement.
Final thought: Barring a recession, any moderation in housing prices and mortgage rates will be aggravatingly slow.
Goldman Sachs is forecasting prices to rise 4.4 percent in 2025, compared with 4.5 percent this year and a longer-term average of 5 percent. Mortgage rates will decline, but incrementally.
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- “We believe we’re well past the peak in mortgage rates, and we think it’s going to be a slow but steady grind lower over the coming years,” Goldman Sachs research analyst Vinay Viswanathan said in an article posted last month by the firm.
A steady grind is hardly a welcome forecast for would-be homeowners who have already been through the wringer.
Larry Edelman can be reached at larry.edelman@globe.com.