The US housing market has been largely stagnant due to elevated mortgage rates, high home prices, and inflationary pressures, FOX Business reports.
While mortgage rates have eased slightly in recent months, potential buyers and sellers remain cautious, waiting for more significant relief. The Federal Reserve’s recent 50-basis-point (bp) interest rate cut—larger than expected—raises the question: will it have a meaningful impact on mortgage rates?
Last week, the average 30-year fixed mortgage rate fell to 6.20%, its lowest point in over 18 months. However, about 80% of current mortgage holders still enjoy rates below 5%, according to a survey by Zillow. High home prices, compounded by low inventory, continue to keep the housing market out of reach for many Americans.
The Federal Reserve’s aggressive campaign to hike interest rates over the past year has been aimed at curbing inflation, but it has also worsened the affordability crisis in the housing market. While the federal funds rate—the target rate the Fed sets—is not directly linked to mortgage rates, it influences overall borrowing costs for home equity loans, credit cards, and auto loans. Mortgage rates, in contrast, are more closely tied to movements in the 10-year Treasury yield.
According to Derrick Barker, CEO and co-founder of Nectar, a real estate financing firm, the recent rate cut had already been priced into the mortgage market ahead of the Fed’s announcement.
“In the short term, I don’t expect to see much change in mortgage rates,” Barker said.
He noted that the broader economic outlook will be the key driver of future rate shifts. If the economy continues to weaken, mortgage rates could decline further. However, if economic conditions improve, rates might rise again.
Barker cautioned that despite the Fed’s recent cut, current mortgage rates could persist for years unless there are significant changes in economic conditions. For now, the Fed’s rate cut may provide limited immediate relief to the housing market, as larger market forces continue to drive mortgage rate trends.
