**The Federal Reserve Implements Anticipated Rate Cut**
On Wednesday, the Federal Reserve announced a significant interest rate decrease, cutting rates by half a point. This marks the first reduction since the onset of the pandemic, bringing the federal funds rate to a range of 4.75% to 5%.
In recent weeks, the Fed faced increased pressure to lower rates, spurred by economic data indicating that inflation has edged closer to its 2% target while unemployment has surged to 4.3%.
As a result of the expected rate cut, mortgage rates have begun to decline, with the most common home loan type falling to its lowest level in two years, according to the Mortgage Bankers Association. Last week, the average rate for a 30-year fixed mortgage was 6.15%, leading to a 5% rise in purchase applications and a 24% increase in refinance applications compared to the previous week, after seasonal adjustments.
While mortgage rates don't directly align with the Fed’s interest rates, they are influenced by the same economic conditions that the central bank evaluates when making rate decisions.
The National Housing Conference praised the Fed's decision, stating that it could have significant effects on the U.S. housing market by addressing affordability issues and encouraging inventory growth.
However, Fed Chair Jerome Powell cautioned that predicting the impact on the housing market is challenging. He highlighted that the ongoing inventory shortage affecting residential sales isn't an issue that the Fed can resolve, as it depends on market conditions and federal government policies.
The Fed maintained steady rates since last July after a prolonged period of increases aimed at curbing inflation. These rate hikes contributed to rising mortgage rates, which in turn stalled home sales and decreased inventory. Many potential sellers opted to retain their properties, benefiting from lower mortgage rates secured during the pandemic.
With the recent decline in mortgage rates, transactions are starting to rebound. Reports indicate that new home sales rose nearly 15% from July.
“The housing market could recover sooner than expected,” commented Redfin economist Chen Zhao. “For buyers or sellers anticipating the Fed's actions, much of that impact has already been priced in.”
In the near term, lower mortgage rates may heighten competition for the limited number of homes available, with some experts warning that it could take months for inventory levels to stabilize after the previous higher rates.
“In this elevated rate environment, we haven’t fully caught up on inventory,” noted Melissa Cohn, a regional vice president at William Raveis Mortgage. “While current levels are higher, they still aren’t what many would consider normal.”
