Interest rates are finally coming down this year. Here's what that means for 5 common investments.
Real estate has long been one of the most common forms of wealth for generations of Americans, and lower interest rates could mean a boon for existing homeowners.
Two-thirds of American families had invested in a home that they own and live in as their primary residence in 2022, and another 13% owned other residential properties, according to the Federal Reserve’s Survey of Consumer Finances.
As of August, the average interest rate on a 30-year, fixed-rate mortgage was 6.5%, down from a peak of 7.8% in October 2023; industry professionals forecast that rate could dip even lower in the coming months. A decrease in the federal funds rate means lenders will offer lower interest rates on home mortgages.
Higher interest rates have made it unappealing to sell for those already invested in the housing market. Many homeowners are locked into lower rates and subsequently lower mortgage payments than they could get when buying another house today, sometimes described as a “lock-in” period.
Experts anticipate that lower mortgage rates could boost home-buying activity. When market activity heats up, it could push home values higher at faster rates as well, similar to the frenzied market seen from 2020 to early 2022.
For the other one-third of Americans who are not homeowners, the last several years of historically high interest rates have made homeownership increasingly unaffordable. Economists at Bank of America and elsewhere don’t anticipate mortgage rates will drop significantly enough in response to a lower federal funds rate to make a significant change.
For those invested in real estate investment trusts, or REITs, the near term could be volatile. However, interest rates alone are not a key factor in the success or failure of REITs, according to S&P Global research.