The very real possibility of a rate cut from the Federal Reserve is fueling hopes that America’s sluggish housing market might soon turn a corner.
Mortgage rates have doubled since 2020، contributing to one of the most unaffordable housing markets in history. While the Fed doesn’t directly set mortgage rates، its actions affect borrowing costs throughout the economy.
The most apparent effect: An interest rate cut could help ease the upward pressure on mortgage rates، making one piece of the home buying equation more affordable. That could be good news for first-time home buyers and existing homeowners who have been hesitant to put their houses up for sale in a higher interest-rate environment.
However، it could also spell fiercer competition among home buyers.
Mortgage rates have already begun steadily falling in anticipation of the Fed’s expected Wednesday cut. According to Freddie Mac، the average 30-year fixed mortgage rate fell to 6.20% last week — the lowest level since February 2023، and down significantly from last year’s peak of 7.79%.
A single percentage point change in mortgage rates may not seem like a lot، but it can save home buyers hundreds of dollars in monthly payments.
Consider as an example a home sold for $422،600، the median sales price of a home in the US according to the National Association of Realtors. Assuming the buyer put down a 20% deposit at closing and has a standard 30-year fixed mortgage rate، that buyer could save more than $2،600 per year on interest payments if they lock in a 6% mortgage rate compared to 7%.
