'I would get out there': Shark Tank's Barbara Corcoran says Fed rate cuts would cool mortgage rates, but there's a downside — why waiting to buy a home might not deliver the win you want

The state of the housing market

Consumer prices rose just 0.2% in July, according to the Bureau of Labor Statistics, after declining 0.1% in June and remaining flat in May. The annual inflation rate sits at 2.9% — less than a point away from the Fed’s stated 2% goal.

While Federal Reserve Chair Jerome Powell hasn’t committed to a rate cut in September, the markets see this “as a near certainty,” according to Morningstar, citing figures from CME FedWatch. Morningstar also recently predicted the Fed would “deliver hefty cuts over the next two to three years and bring the federal funds rate to 1.75% to 2.00% by year-end 2026.”

But a rate cut doesn’t necessarily translate into lower mortgage rates (at least not immediately). While it can influence mortgage rates, some banks may have already set their rates in anticipation of a cut in September. And many industry watchers, like Corcoran, believe a rate cut would drive pent-up demand for housing, which could push housing prices even higher.

High mortgage rates and home prices “led some prospective buyers to step back,” according to Freddie Mac’s housing and mortgage outlook for August 2024. But with mortgage rates expected to cool, this could lead to a “significant surge in demand mainly from the first-time homebuyers left at the margins.”

Following a surge in demand, Freddie Mac would expect “upward pressure on home prices” and forecast home prices to rise by 2.1% in 2024 and 0.6% in 2025.

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What can homebuyers do?

The starter home market is “crazy,” says Corcoran. “There’s so much competitive bidding, so much going over the price and so much fear going around because people feel like they can't get ahead.” That’s why waiting to buy may not deliver the win you want.

“Wait until you see what happens with prices when interest rates come down another percentage point,” she said.

Homebuyers have a couple of options. They can wait it out and try to time the market (along with a lot of other homebuyers). Or, they could dive in now, be willing to suffer some short-term pain and then, if mortgage rates do fall, consider refinancing.

If you have the money and can afford a mortgage at the current rate, it may make sense to get into the market now before demand skyrockets. If housing prices go up, you’ll gain equity. Even if they don’t, you may have a better chance of getting the home you want without having to deal with the stress of a buyer frenzy.