T
he real estate industry is eagerly waiting for the Federal Reserve's first interest rate cuts in over two years. However, the central bank's next move is likely to be cautious. The Fed may adopt a more prudent approach towards monetary policy after a hotter-than-expected report on the core Consumer Price Index (CPI), which is likely to result in a 25 basis-point cut. Some analysts are still predicting a 50 basis-point cut with only one week left until the authorities are scheduled to meet. It's important to note that the core CPI does not include food and energy prices, which are more volatile compared to other price points analyzed in the data. According to Inman's report, the metric is up 3.26 percent year-over-year due to increased costs for shelter, airline fares, car insurance, education, and apparel.

    Pantheon Macroeconomics chief economist Ian Shepherdson linked rising core CPI to lagging rent data and "sampling noise." Shepherdson believes that core CPI inflation will fall to 2 percent by the first half of next year, but this is unlikely to change the Fed's outlook soon. A majority of economists who responded to a Reuters poll this week stated that the Fed will lower interest rates by 25 basis points at each of its three policy meetings in 2024. Only nine out of 101 respondents expected a cut of 50 basis points. The CME FedWatch tool reduced the odds of a 50 basis-point slash from 44 percent to 15 percent.

    While hope is fading for a 50 basis-point cut next week, the Fed could still surprise everyone with such a cut to counter further weakness in the labor market or to project the possibility of larger cuts down the road, as per Redfin economist Chen Zhao's blog post. More rate cuts are still anticipated in November and December.

    Mortgage rates have dipped to a 19-month low, causing a stir in the market. The residential real estate sector is eagerly awaiting a long-awaited Fed cut, with the whole market on the edge of its seat. Dealmaking has slowed down as lenders await rate cuts, hoping for a more immediate reprieve on borrowing costs which have skyrocketed since the Fed started hiking rates to combat inflation in March 2022. Fed policymakers are set to meet next week to make a determination.