A Rate Cut May Be The Push The Housing Market Needs

Home buyers, start your engines. 

The Federal Reserve’s board of governors will conclude its two-day summit today, and it’s all but certain to end with a reduction of interest rates. For the housing market, that’s all but certain to mean a reduction in mortgage rates — and that may just be the big falling domino that finally, finally, finally tips the long locked-up housing market in favor of buyers.

Rate Keepers

For months now, experts — from RedFin economists to the CEO of Lowe’s — have pointed to myriad indicators that home sellers are reaching their breaking point. In fact, a full 39% of home builders reported slashing prices in September, according to the latest National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index data released Tuesday. That’s up from 37% in August, and the most in five years (the average price cut was 5%). And, while home builders indicated low confidence in the current market for newly built single-family homes, they crucially expressed optimism about the market’s future.

Why? Because a cut in mortgage rates is likely just what many home buyers have been waiting for:

• Rates fell 15 basis points week-to-week last week, reaching an 11-month low of 6.35% for an averaged 30-year fixed loan, according to Freddie Mac. The dip has already started to impact the market: The Mortgage Bankers Association said that its measure of applications for a mortgage to buy a home increased 7% last week, the highest level since July.
• Meanwhile, Lawrence Yun, chief economist of the National Association of Realtors, told Barron’s this week that sales could increase by as much as 15% in 2026 if mortgage rates fall to 6%.

A double-digit increase in sales is “not common,” Yun wrote in a LinkedIn post on Monday, “but after 3 years of super-low sales, [the market] is primed to pop.”

Supply Shock: Buyers, of course, won’t be the only beneficiaries of lower rates. Builders and developers too will benefit from the reduced borrowing costs, NAHB chief economist Robert Dietz told Realtor.com on Tuesday. That could help close the 4.7 million unit housing shortage, as estimated by the US Chamber of Commerce in a March report. In other words: a mortgage rate deduction will help, but there’s still a long way to go.