Realtors, home builders react to Fed’s interest rate cut

Will the Fed's decision to lower interest rates make an impact on the housing market? Different associations give their take.

Realtors, home builders react to Fed’s interest rate cut

HIGH POINT – The Federal Reserve’s decision to lower interest rates last week was well-received by the furniture industry, an industry whose health is deeply connected to the strength of the housing market. If housing sales improve, furniture sales also generally improve.

So, the question now is: Will the housing market actually improve? The National Assn. of Realtors says yes.

“The recent development of lower mortgage rates coupled with increasing inventory is a powerful combination that will provide the environment for sales to move higher in future months,” said Lawrence Yun, the association’s chief economist.

An immediate impact, though, seems unlikely to be felt. One reason is that the home buying process takes several months. Another is that mortgage rates had already been falling in anticipation of the Fed’s likely decision to cut rates.

“That is why the 30-year rate has fallen by 150 basis points from early in the year to today,” Yun said in a blog post. “Any further decline in mortgage rates will be minimal. The Fed does not directly control mortgage rates, and the federal budget deficit is huge. Future Fed rate cuts are not only anticipated but will not be as impactful because large federal borrowing will leave less capital available for mortgage lending.”

Still, Yun says home buyers are seeing benefits. “Due to the already low mortgage rates compared with spring, the purchasing power for home buyers has been lifted by around $50,000 for those with a $2,000 monthly mortgage payment budget. Consumers who were priced out due to earlier higher mortgage rates could now be back in the market.”

Home builders welcomed the cut, but were unsure of how much benefit will be felt.

“Thanks to lower interest rates, builders now have a positive view for future new home sales for the first time since May 2024,” said Carl Harris, chairman of the National Home Builders Assn. “However, the cost of construction remains elevated relative to household budgets, holding back some enthusiasm for current housing market conditions. Moreover, builders will face competition from rising existing home inventory in many markets as the mortgage rate lock-in effect softens with lower mortgage rates.”

But while hurting home builders, that increased inventory is good for home buyers, says Yun at the NAR.

“The rise in inventory – and, more technically, the accompanying months’ supply – implies home buyers are in a much-improved position to find the right home and at more favorable prices,” he said. “However, in areas where supply remains limited, like many markets in the Northeast, sellers still appear to hold the upper hand.”

One other factor to note is that existing home prices are still extremely high. In August, the median price across the country was $416,700, 3.1% higher than last year. Prices are growing fastest in the Northeast, with a 7.7% increase from last year to a $503,000 average in August. Midwest prices are up 3.8%, South prices are up 1.6%, and West prices are up 2.2%.