Moderate Expectations

Lowering Rates ‘Only One Piece’ of Housing Puzzle

Sellers Unlikely to be Moved by Fed’s Cuts


Today’s homeowners’ thinking is still likely to be dominated by their existing, ultra-low mortgage interest rates – something industry observers don’t expect the Federal Reserve to change. iStock illustration

Homebuyers may benefit a bit from the Federal Reserve’s expected lowering of its benchmark short-term interest rate later this week. 

But the anticipated Fed action won’t make much of a difference, if any, in terms of overall home prices or the supply of homes for sale in New Hampshire, real estate industry sources say. 

After more than two years of fighting inflation with higher interest rates, the Federal Reserve is poised to cut rates later this month, either by a quarter point or a half point, depending on how much stimulus the economy is estimated to need moving forward. 

Local market-watchers said they welcome any Fed rate cuts, saying it will slightly ease pricing pressures and boost confidence that the housing market may finally be headed in a more positive direction. 

“Having rates come down will help a little,” said Susan Cole, owner of Susan Cole Reality Group in Lebanon and president-elect of the New Hampshire Association of Realtors. “But lowering interest rates is only one piece of the real estate puzzle. It will help only a smidgen. Much more needs to be done. What we really need is more supply of homes to reach the balance that we want.” 

 Already ‘Baked In’ 

Other real estate observers note that the market has already “baked in” expected Fed action by lowering mortgage rates over the past year, from a high of around 7.79 percent last year at this time to around 6.3 percent or even lower today. 

During roughly the same period, there’s been hopeful signs on the inventory front, with closed sales in NH up by about 10.5 percent in July, to 1,273, compared to July 2023. New listings were also up in NH by 14.6 percent in July, to 1,595, compared to July 2023, according to data from the New Hampshire Association of Reality. 

But prices have continued to rise over the past year, by more than 10 percent in July, to $530,000, compared to July 2023, according to data. 

Joanie McIntire, 2024 president of NHAR and associate broker at Coldwell Banker-J.Hampe Associates in Concord, said recent increases in closed sales and listings are welcome, but they’re coming off of last year’s historically low inventory levels. 

“Sales are just bouncing around the bottom,” she said. “If we’re making sales gains of only 100 or so [over last year], we’re really not getting anywhere.” 

She noted that MLS data in August showed approximately 2,321 homes for sale in New Hampshire, but that number stood at 12,058 in 2014. That shows the magnitude of today supply problem in New Hampshire, she said. 

Sellers’ ‘Golden Handcuffs’ 

Housing experts agree that today’s dearth of homes for sale in New Hampshire is caused by two things: a lack of new housing construction over recent years and higher mortgage rates that have discouraged many homeowners, such as empty nesters looking to downsize, from putting their houses on the market if it means they’ll have to substantially increase their monthly mortgage payment or pay a much higher interest rate when buying an alternative home. 

The latter mortgage-rate dilemma is referred to as the “rate-lock effect” or the “golden handcuffs.” 

Mark Lynch, a Realtor at RE/MAX Synergy in Bedford, said a lowering of interest rates by the Fed could provide an incentive, albeit a small one, for some sellers to finally put their homes up for sale. 

“We’re slowly getting further and further away from the days when people could get 3 percent mortgages,” he said. “Every day that goes by makes current rates look more normal.” 

That may be true – that more people are becoming increasingly resigned to the fact that higher rates are the new norm. 

But Lynch and others say today’s approximate 6-plus-percent interest rate range, compared to the 4 percent or less rates three years ago, remains a problem for many people thinking of selling. 

NHAR’s McIntire noted that industry data shows 50 percent of current homeowners have mortgage rates of 4 percent or less – and 75 percent have mortgage rates of 5 percent or less. 

In other words: There’s still a sizeable gap between what current homeowners pay in interests rate today versus what they might pay if they purchase a new home. 

McIntire expressed doubts Fed action this month will prompt a lot sellers to sell.  

“Maybe it will nudge some people – but only maybe,” she said. 

The ultimate solution to the lack of homes for sale: building new houses, McIntire said. 

And that’s a long-term problem that a quarter-point drop in interest rates simply won’t solve, she said. 

Buyer Pluses and Minuses 

Theoretically, a drop in mortgages rates will help buyers, if only a little, by lowering monthly mortgage payments. 

And that could draw more buyers back into the market, real estate officials say. 

Lynch noted he’s already begun to call back buy clients who previously put their home searches on hold because of skyrocketing prices and lack of homes for sale. 

His message: the market may be loosening up a bit and clients might want to get ready for new opportunities to buy homes. 

He noted the already slight increase, over the past year, of listings and homes staying on the market longer, coupled with the expected Fed rate cut. 

“I’m beginning to feel more positive,” he said. “The competition for homes has settled down a bit.” 

But the fact remains that any lowering of mortgage rates, and the small savings that entails, will probably be wiped out by relentlessly rising home prices in general, industry experts say. 

Again, the ultimate solution to today’s low inventory of homes for sale and high home prices is lack of new housing, they say. 

“Many things need to fall in place for fundamental changes to occur,” said Cole. “I don’t see a fast-track change in the situation we now have now.”