What the Fed’s interest rate cut means for the housing market

The U.S. Federal Reserve on July 31 announced it would cut interest rates by 25 basis points, the first such cut since the Great Recession in 2008. Real estate economists are split on the immediate impact it will have on mortgage rates and the housing market. Lawrence Yun, chief economist at the National Association of Realtors, believes the rate cut will have little impact on the 30-year mortgage, as the decline had already been anticipated. Other types of borrowers — those with adjustable-rate mortgage and commercial real estate loans — will benefit from the rate cut.

“These low interest rates will partly help with housing affordability over the short-term,” Yun said. “Both rents and home prices have been consistently outpacing income growth. The only way to mitigate housing-cost challenges as a long-term solution is to bring more supply of both multifamily and single-family homes to the market.” Ruben Gonzalez, chief economist at Keller Williams, believes today’s announcement could cause current, historically low-interest rates to rise. “[I]f the Fed’s policy move has its intended consequence of boosting inflation and maintaining the expansion of the economy, we should actually expect to see mortgage rates increase,” Gonzalez said.

Source: Inman; 7/31/2019