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America’s largest group of homebuilders is feeling good about where the housing market is headed.
That’s because everyone seems confident that the Fed is poised to cut interest rates for the first time in 2025 this week, the National Association of Homebuilders wrote in a note Tuesday.
That’s expected to lower borrowing costs for buyers—a much-needed catalyst for the US housing market to reopen after years of higher mortgage rates that have sidelined buyers and sellers.
The Fed looks poised to trim its target rate by 25 basis points this week, according to the CME FedWatch tool.
Long-term rates like the 10-year Treasury yield, which influence consumer loans like mortgages, are already starting to cool as the market anticipates lower rates in the future.
The 10-year US Treasury yield was around 4.03% on Tuesday, down 77 basis points from its peak of around 4.8% in January.
Meanwhile, the 30-year fixed mortgage rate dropped 15 basis points to 6.35% in the last week, according to Freddie Mac data.
Robert Dietz, the chief economist of the NAHB, said he believed the recent interest rate changes were signs that housing could be approaching an “inflection point.” He gave two reasons:
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Home sales could rebound. Housing activity could see a “turning point” as interest rates move lower, Dietz said. One Redfin analysis this year found that the housing market has 34% more sellers than buyers.Inflation worries are subsiding. The fact that the market is pricing in lower rates for the long-term suggests that investors don’t think the central bank will be worried about inflation over the long-term. That would cause long-end rates in the economy to rise, and likely push mortgage rates higher.
“Lower mortgage rates will help the housing market, as housing has become increasingly unaffordable,” Dietz said, adding that the NAHB was anticipating two rate cuts from the Fed by the end of the year and for mortgage rates to stay below a threshold of 6.5%.
He continued: “These actions will help support home buying demand after a disappointing start for housing in 2025. And more good news could soon come from future regulatory policy relief.”
It’s a pivotal week for the broader market, which has been waiting for another Fed interest rate cut all year. Investors began to expect a rate cut with greater certainty after August jobs data was weak, suggesting that the central bank has room to lower borrowing costs to prop up the economy.
The priced-in probability that the Fed will trim its target rate by 25 basis points inched up to 96% Tuesday morning as the central bank kicked off its two-day policy meeting.
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