Photo: Chair of the Federal Reserve Jerome Powell
After months of anticipation, the Federal Reserve cut interest rates by half a percentage point at its meeting this week. This move is expected to boost consumer confidence and bring potential home sellers and buyers off the sidelines and into the housing market.
In a statement, officials said members of the Federal Open Market Committee decided to lower the target range for the federal funds rate to 4.75% to 5% in light of progress on inflation and the balance of risks. They noted that the committee is strongly committed to supporting maximum employment and returning inflation to its 2% objective.
During a press conference on Wednesday afternoon, Chair Jerome Powell said since their last meeting in July there has been a lot of data that has come in, including two employment and two inflation reports.
“We concluded that this was the right thing for the economy, for the people that we serve, and that’s how we made our decision,” Powell said.
When asked about future rate cuts, Powell maintained his stance that they will be looking at incoming data meeting by meeting.
Industry leaders say this marks the start of an easing in monetary policy.
Chief Economist Lawrence Yun at the National Association of Realtors said in a statement that this cut “is the beginning of six to eight rounds of further rate cuts well into 2025.”
Yun said consumers are already feeling the effects of the shift in policy because mortgage rates have fallen in anticipation of the Fed’s likely path.
“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,” Yun said.
The key element is spreading the message, as a majority of consumers still believe it is not a good time to buy a home.
Bill Banfield, chief business officer of Rocket Companies, said in an interview with The Mortgage Note that anyone considering purchasing a home or refinancing their mortgage should talk with a lender to go over the numbers.
In April, the 30-year fixed mortgage rate was at 7.29%. Today, they are at 6.15%.
“People just have to talk to a licensed loan officer to see what makes sense for them,” Banfield said.
Banfield said consumer sentiment will improve and business will pick up in lending moving forward because sellers and buyers will start to hop into the market if they see consistently lower rates. But that could take some time.
“I think you are going to see this happen, except for housing doesn’t move fast. It’s just going to take a little time and consistency with rates in the 5s or lower to get people moving,” Banfield said.
This was the Fed’s first rate cut since March of 2020, when officials were responding to the Covid pandemic. They began raising rates in March of 2022 because inflation was climbing to its highest level in more than 40 years.
Rates have remained at a target range of 5.25% to 5.5% since July of last year.
The next FOMC meeting is Nov. 6 and 7.
