According to Max Zahn of ABC News, following the Federal Reserve’s half-point interest rate cut, the S&P 500 and Dow Jones Industrial Average soared to record highs, signaling investor optimism that lower rates will boost economic performance and corporate earnings. Experts expressed cautious optimism, noting that while rate cuts typically buoy markets, the already elevated stock prices after a year of solid gains could increase volatility if the economy continues to slow. The rate cut and forecasts of further reductions may broaden the market upswing beyond large tech companies to other sectors. Still, the market remains vulnerable to downturns amid economic uncertainties.

Allison Morrow of CNN reports on the Fed cut, highlighting that experts warn that without a significant boost in housing inventory, reduced rates may instead amplify demand, intensify competition, and potentially worsen the affordability crisis as more buyers chase limited homes. “By solving the demand side of the equation without fixing the supply issue, the Fed may end up exacerbating the home affordability problem it is aiming to solve.”

Teiruma Gonzalez of Realtor.com reports that the Fed cut will make mortgages more affordable, potentially boosting demand for new-construction homes by expanding buyers’ budgets. However, experts caution that lower rates may attract more buyers to newly built homes. They could also encourage homeowners with locked-in low rates to list their properties, increasing existing home inventory and intensifying competition for new construction.

Source: Realtor.com (September 2024)

“Certain regions of the U.S. are hot spots for new construction, particularly the South and West. In fact, in five states within these regions—South Carolina, North Carolina, Idaho, Arizona, and Florida—new-construction homes are priced lower per square foot than existing homes, making them particularly attractive to budget-conscious buyers.”

Lance Lambert of Fast Company reports that the half-point interest rate cut has lowered mortgage rates, improving housing affordability and potentially easing the “lock-in effect” that discourages homeowners from selling. While this may boost existing home sales and refinancing activity, experts caution that the impact on housing prices is uncertain due to ongoing supply constraints, suggesting that any housing market recovery may be gradual.

Lindsay Dunsmuir and Ann Saphir of Reuters report on the broader economic implications, highlighting that it has a potentially stimulating effect and may help to prevent a recession. While cheaper loans and credit may boost economic activity, experts caution that achieving a “soft landing”—reducing inflation without causing significant job losses—is challenging and uncertain. The rate cut could lead to lower interest rates on mortgages, credit cards, and personal loans but may also reduce returns on savings accounts, and housing affordability remains strained despite falling mortgage rates due to high home prices.

Existing home sales

Keith Griffith of Realtor.com reports on existing home sales, noting that despite lower mortgage rates and increased housing inventory, sales of existing homes in the U.S. fell by 2.5% in August to the lowest level for that month since 2010, as buyers remained hesitant due to continued affordability challenges and rising home prices. Economists note that while conditions are improving, many potential buyers are waiting for further decreases in mortgage rates and home prices before entering the market.

Source: NAR (September 2024)

“Still, prices continued to rise, with the $416,700 median sales price in August up 3.1% from a year ago, the 14th consecutive month of annual price increases. Home prices did dip slightly from the prior month, following typical seasonal trends, but it marked the highest median August sales price on record.”

Skylar Olson of Zillow comments on the data, highlighting that falling mortgage rates, which dropped from 6.73% to 6.35% during August, along with an increase in new listings, may create a “sweet spot” of improved affordability, reduced buyer competition, and more available homes. This combination could attract buyers in the coming months, signaling a potential stabilization toward more typical sales volumes.

Jeff Andrews of HousingWire comments on the data, noting that the sales decline occurred even though total housing inventory rose by 22.7% compared to a year ago, and the median home price increased by 3.1% year-over-year to $416,700. Regional sales were sluggish across the board, with the Midwest experiencing no monthly change but a 5.2% annual decline, while other regions saw both monthly and yearly decreases. 

Source: HousingWire (September 2024)

Andrews reports that economists suggest sellers must be more flexible, potentially offering concessions like price negotiations, home inspections, and closing cost assistance. Buyers now have more options and bargaining power due to higher inventory levels and the anticipation of further mortgage rate decreases.

Data centers

Microsoft recently announced that it plans to restart the Three Mile Island nuclear plant to power its data centers, according to Ben Geman of Axios. Microsoft and Constellation Energy have announced a 20-year power purchase agreement to restart Unit 1 of Pennsylvania’s Three Mile Island nuclear plant. The deal aims to supply zero-carbon electricity to power Microsoft’s growing energy needs for its data centers, particularly as demand increases with the expansion of AI. Constellation plans to invest $1.6 billion to revive the reactor, pending approval from the Nuclear Regulatory Commission and state and local permits. This move reflects a broader trend of leveraging existing nuclear facilities to meet rising electricity demand while reducing carbon emissions.

Jordan Novet of CNBC reports that Microsoft and BlackRock have formed the Global Artificial Intelligence Infrastructure Investment Partnership (GAIIP) to raise $100 billion for developing AI data centers and the energy infrastructure needed to power them. The partnership aims to initially secure $30 billion, with contributions from Global Infrastructure Partners and MGX, to address the soaring demand for AI technologies that require significant computational power and energy. 

JLL reports on data centers, highlighting that the market has doubled over the past four years and faces record-low vacancy rates of 3%. Construction has surged more than sevenfold in two years, yet 84% of new spaces are preleased, and asking rents have risen between 13% and 37% year-over-year, depending on lease size. Investor appetite remains strong, with investment sales increasing from last year and development yields exceeding 9.5% for turnkey developments, indicating robust growth and ongoing opportunities.

Source: JLL (September 2024)

Christian Nunley of CNBC reports on the broader market, highlighting that surging demand for data centers is driven by increased digitalization and AI, which has helped create over 2,800 facilities across the U.S. Land values for potential data center sites have soared, sometimes tenfold, especially for properties near power grid access points. This boom has attracted significant interest from private equity firms like Blackstone, whose executives view data centers as the most exciting asset class. As data centers become essential for internet infrastructure, cloud computing, and AI, both landowners and investors are capitalizing on their skyrocketing value.