The Federal Reserve Board cut interest rates by 0.5% Wednesday, the first drop in more than four years.
The rate cut was not a surprise, but observers wondered whether the Fed would take a more cautious approach and cut by 0.25% or a more aggressive 0.5%.
The Fed rate cut does not directly correlate with mortgage interest rates, but mortgage rates have been dropping in recent weeks in anticipation of the Fed’s move, with more cuts expected later this year and beyond.
Last week, the average 30-year fixed mortgage rate dropped to 6.2%, down from 6.35% the week before and from 7.18% the same time last year. The 6.2% average is the lowest since February 2023, Freddie Mac reported.
Wednesday’s cut could fuel more mortgage rate drops and ease some of the gridlock in the housing industry. For the last two years, many buyers have been on the sidelines waiting for better rates.
“Anything that helps buyers indirectly benefits sellers because it increases buyers’ purchasing power and options. When it comes to selling a home, you want as many buyers as possible to have as many options,” said Chris Heller, president of real estate tech company OJO, based in Austin, Texas, and co-founder of Agent Advice.
“Real estate agents should communicate the urgency for their clients. Because of the advantages of owning or selling real estate, it is in the best interests of both the buyer and seller to buy or sell as soon as possible.
“Another thing agents should do is ensure that they are over-communicating with their existing relationships and keeping their clients up to date on market conditions. Real estate agents should strive to be the ones who educate and inform both their current and prospective clients.”
The National Association of REALTORS® recently projected that the average 30-year, fixed mortgage rate could dip to 5.9% by the end of the year. The Fed has signaled the possibility of a combined 0.5% drop later this year and the potential for a full 1% drop in 2025.
“The Fed’s half-point rate cut decision is the beginning of six to eight rounds of further rate cuts well into 2025,” NAR Chief Economist Lawrence Yun said in a statement. “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. Due to the already low mortgage rates compared to 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.”
Lower mortgage rates could present a refinance opportunity for homeowners who made purchases in the last two years, when typical mortgage rates were 7% or higher.
“The recent decline in mortgage rates is contributing to the momentum toward normalization and unleashing the housing market potential in the next few years,” said Dr. Selma Hepp, chief economist for CoreLogic. “About 4 million homes have a refinance opportunity with rates falling closer to 6%, and there are more in the pipeline as the Fed starts the easing cycle. It’s important to note that lower rates have been a hot topic for a while, and potential homebuyers have been on the sidelines in anticipation of lower rates and improved affordability.”
Maria Elena Plasencia, sales director for Fortune International Group in Miami, said Wednesday’s news was a good first step toward a more robust real estate market.
“Following the Federal Reserve’s recent rate cut of half a point, the real estate market has an opportunity to even the scales, possibly even tip them in favor of buyers,” she said. “This shift will take some time and requires further cuts by the Fed, but we are heading in the right direction.”