The Federal Reserve held the rates they charge to their overnight lenders unchanged at their December 13th meeting. And they went further by saying that they may drop the rate they charge 3 times in 2024. The Dow Jones Industrial Average responded with a 500+ point rally and hit and an all-time high. At some banks rates dropped with likely more dropping their rate soon. The average mortgage interest rate dropped from 8.45% to 7.1 on December 20th, as per Investopedia. Rates have declined further since.
Where will rates end up? Here is a chart of interest rates for the last 20 years that shows that extended period of low rates. During that time, the FED determined inflation wasn’t a threat and kept their rate low for a atypically long period. In the range of 5 to 6% seems most likely.
If you have a mortgage below 4%; which 90%+ of mortgage holders do, you likely aren’t going to move and lose your advantageous interest rate. That is what most homeowners are doing and is why inventory is so low. Here is chart dating back to 2020 which shows inventory levels (mostly Coops) in Queens and Forest Hills specifically. Inventory levels are still about 30% below their peak, and much of that inventory is in 1 bedroom Coops. Data source: StreetEasy.
More people who are financing a home now are getting Adjustable Rate Mortgages (ARM’s) as they did when 30 year mortgages where high historically. See chart below. They are now more than 10% and could become 30% (based on 2004 to 2007) of all total mortgages. The rate was less than 5% for many years. These loans get replaced with fixed-rate mortgages if rates drop down to a similar level. If rates do get close to 5%, ARMs will drop back down to less than 10%.
If you do find a house that really works for you and will for the foreseeable future, you will likely be happier if you go ahead and explore your options to make the purchase rather than waiting on interest rates to fall and potentially lose out on a house that works for you.
