Kelly Perkins: Are Fed Rate Cuts Really the Homebuying Game-Changer You Expect?

With 33 years in the financial industry, Novēm Wealth’s Kelly Perkins has seen the booms and busts of the Dallas-Fort Worth real estate market and beyond. As co-founder and partner at the Dallas-based firm, she is a qualified advisor, industry leader, and sought-after public speaker — and she’s brought her expertise to CandysDirt.com for a monthly column on the market as she sees it.

By Kelly Perkins
Special Contributor, Novēm Wealth

Everyone’s buzzing about interest rates. Will the Federal Reserve’s rate cuts finally spark a homebuying frenzy or a market rally? Don’t bet on it. The reality might not live up to the hype.

The Fed, an independent agency tasked with maximizing employment, stabilizing prices, and moderating long-term interest rates, operates in a complex economic landscape. Inflation has eased to 2.9% from a pandemic peak of 8.6%, and unemployment sits at a near-historic low of 4.1%, reflecting the natural resilience of a free-market system and the fading impact of pandemic disruptions. Stock markets are hitting record highs while credit markets remain robust, bolstered by a strong banking system and healthy consumer balance sheets. No recession is on the horizon, and a global credit crisis isn’t brewing. Yet, many expect Fed rate cuts to unleash a borrowing boom, especially for mortgages.

Mortgage Rates in Texas Are Falling Slower Than Almost Every Other State

Here’s the reality check: the market has already priced in these cuts. Mortgage rates, tied to the 10-year Treasury note rather than the Fed’s short-term rates, hinge on expectations of future inflation and economic growth. So, even if the Fed lowers rates, mortgage rates might barely flinch.

Texas Real Estate Is Moving! Will You Be Ahead of the Herd?

Did you know over 44% of U.S. homeowners are mortgage-free, and 55 to 60% of those with mortgages secured rates below 4%? To run that math for you, less than 20% of all homeowners are affected by rates at today’s levels.

Does this mean life in the U.S. is on hold? Far from it. People are still relocating, downsizing, or expanding. Real estate remains a key part of these transitions. In Texas, where companies and families are flocking, waiting for a magical rate drop could mean missing out. An important element to your portfolio is real estate. Our strategy at Novēm Wealth? We are utilizing alternative lending avenues to act now. By the time the “herd” jumps in, the best opportunities may be gone.

The Hidden Flaw in ETFs and Index Funds No One Talks About

Let’s zoom out. Many investors are diving into ETFs or mutual funds tracking indexes or sectors, drawn by diversification and automatic rebalancing. Sounds smart, but here’s the catch: holding an S&P 500 ETF, Nasdaq fund, mid-cap, small-cap, international, and bond funds could mean owning tens of thousands of securities — sometimes up to 45,000.

For that portfolio to thrive, everything must perform, from Texas to Tokyo. Auto-rebalancing monthly or quarterly often cuts your winners and props up laggards, diluting gains. Owning “the world” isn’t investment success — it’s autopilot. Currently, there is over $22 trillion in cash, deposits, CDs, and money markets on the sidelines, not invested, which could propel the markets forward as rates drop and those deposits begin to earn less.

The takeaway? Know exactly what you own and why. Riding the market’s wave blindly isn’t a strategy; it’s a risk.

So, will Fed rate cuts revolutionize the housing market? Probably not. But that shouldn’t stop you. Whether it’s real estate or investments, the smart play is to act thoughtfully now — not when everyone else decides it’s time.

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The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested in directly. Securities and advisory services offered through LPL Financial, a registered investment advisor, Member FINRA/SIPC.

Stats source: National Association of Home Builders, Oct. 25, 2024