The recent decision by the Federal Reserve to implement a larger-than-expected 0.5% rate cut is stirring conversations in Southwest Florida’s real estate circles. While the National Association of Realtors’ settlement made headlines, this rate cut might push already declining mortgage rates even lower.
On September 19, the Federal Home Loan Mortgage Corp. reported that the standard fixed-rate mortgage averaged 6.09%, marking the lowest point since February 2023. This is a drop from 6.2% the previous week and significantly below last fall’s two-decade high of 7.79%. According to the secondary market lender’s website, the decreasing mortgage rates are “reviving purchase and refinance demand for many customers. While mortgage rates do not directly follow moves by the Federal Reserve, this first cut in over four years will have an impact on the housing market. Declining mortgage rates over the last several weeks indicate this cut was mostly baked in, but rates will likely fall further, sparking more housing activity.”
Local Experts Weigh In
Naples Area Board of Realtors President PJ Smith expressed enthusiasm about the Fed’s action, even if the immediate impact on mortgage rates isn’t evident.
“Last year at this time, we were at 7.19%, and now, we are close to 6%,” Smith said.
“As we know, mortgage rates do not necessarily mirror the Federal Reserve’s action, but we are hopeful that this will have a positive impact on our [local] housing market, as well as nationally. It may also increase refinancing and recasting of existing loans.”
Smith believes that buyers previously priced out due to high insurance costs and mortgage rates might reenter the market. “Summer sales have been a little sluggish, but that may also indicate we are normalizing back to a real season in our market versus the residual from the pandemic year-round high activity. First-time home buyers will most likely be the ones that benefit the most. We know the benefits of owning versus renting so our agents need to communicate how important this is to consumers to start building equity.” She added that lower rates might motivate buyers to act quickly, leading to increased demand and competition.
Mortgage Rate Dynamics Explained
From the lending perspective, Tom Lytton, executive vice president and chief credit officer at FineMark National Bank & Trust in Naples, anticipates a further dip in mortgage rates but warns it won’t be directly aligned with the Fed’s rate reduction. Lytton clarified that the Fed controls only the discount rate that banks pay, affecting their cost of funds. However, mortgage rates are also shaped by other economic elements like the 10-year bond market and mortgage-backed securities.
“There’s a belief that when the Fed lowers rates, it lowers rates for every loan in the world,” Lytton said. “That’s the belief, there’s a concept, and that is simply not true.” He predicts stabilization, with mortgage rates potentially settling between 5.5% and 6% in the next 18 months—a range he considers normal. Lytton cautions buyers, especially first-timers, against expecting a return to the pandemic-era rates of around 3%.
For current homeowners with mortgages, many secured at rates below 4%, Lytton noted they likely “aren’t going to sell unless they have to move for a job or a growing family.” He explained, “They’re not going to upsize, they’re not going to move unless prices come down to a point where they say, ‘OK, now I really want that house’ and it makes sense for me to give up my 3.5% mortgage and go borrow money at 6%. So, rates dropping a little bit will help that, but that’s going to exist for a long time. There are going to be people with mortgages that are never going to see that rate again.”
