In a long-awaited move, the Federal Reserve announced a half-percent—or 50-basis point —cut to interest rates Sept. 18. This reduction marks a potential turning point for the housing market and title insurance industry, which has been challenged by reduced transaction volumes since rate hikes began roughly two years ago.
“We are seeing improvements in refinance transactions in the past 90 days,” The Title Team CEO Nick Hacker told The Title Report. “Purchases are better than last year but still a little bit sluggish if we are in fact coming off the bottom, which we believe is happening.”
To accomplish a soft landing, Hacker said, the Fed needs to follow up this week’s rate cut with another half-percent cut before the end of the year.
“Next year is when we believe we will begin seeing some solid recovery. As I have joked with my builder friends, ‘Interest rates up, golf handicap down.’ That will change next year,” he predicted. “Joking aside, the industry is prepared for improvement which will be incremental due to the low supply of homes. It will also be choppy as people get on and off the fence waiting for lower rates. As rates taper, those on the fence get off and then as they stop changing for a short period of time, new buyers will get on the fence.”
First American Senior Economist Sam Williamson expected a more conservative quarter-percent cut from the Fed.
“Markets are pricing in about a 40 percent chance of a 50-basis point cut, suggesting that investors view the recent cooling in the labor market in August as justification for a more aggressive rate-cutting approach,” he said before the cut was announced
The rate cut is set to go into effect less than 50 days before the November presidential election, with that decision deviating from recent history. Policy rates were left unchanged for six to 12 months before the 2020, 2016, 2012 and 2000 presidential elections, a Reuters analysis found.
Upon COVID-19’s arrival in the U.S. and ensuing shutdowns, the Fed cut rates to historic lows, driving unprecedented real estate transaction volume between March of 2020 and mid-2022.
As rates began to climb, home sales and other property transactions slowed drastically. Average fixed rate mortgages peaked at 7.75 percent in the fall of 2023, which was a more than two-decade high.
As of Sept. 18, average 30-year fixed rates sat at 6.89 percent.
Jaime Kosofsky, founding partner at North Carolina-based real estate law firm Brady & Kosofsky, detailed consequences that might be seen throughout the industry as a result of half-pointrate cut.
“Everyone in this industry who is built to handle the type of volume we will see has taken a financial and emotional beating for the past couple of years as interest rates rose,” he said. “Most of us had to lay off or not replace between 50 percent to 70 percent of our workforce. If the spike in business is too steep, the system will not be able to efficiently handle to work.
“Yes, the work will get done, but the quality of work would suffer under the strain of the industry trying to hire, train and produce. We have bolstered our ability by implementing and adopting various technologies, such as bots, microservice, AI, machine learning and integrations. We have also developed workflows which allow our team to handle transactions utilizing (business process outsourcing) and collaboration.”
Tim Evans, founder of Ohio-based Evans Title Agency, welcomed the .50 percent interest rate cut, adding that a .25 percent cut wouldn’t have been enough to spur true recovery.
“I’m not really sure a .25 percent cut will move the needle,” he said. “While rates are a major variable, our market continues to deal with inflated home prices and lack of inventory. A .50 percent cut has more impact as buyers will become more optimistic and sellers might consider listing due to fears of market peaking and potential of additional competition and decreasing values. However, I wouldn’t anticipate more than a 5 to 10 percent increase in sale orders. There could be an uptick in HELOCs as homeowners look to tap equity, eliminate credit card debt and still maintain their low first mortgage rate.”