Fed rate cut gives only modest lift to housing market, buyers cautious

The Federal Reserve's rate cut this week did little to change the trajectory of the U.S. housing market, with mortgage costs hovering near the highest levels in years and supply constrained by homeowners holding onto low-rate loans. The average rate on the 30-year fixed mortgage fell to 6.35% last week, the largest weekly decline in a year and the lowest level in 11 months, according to Freddie Mac, a sign of some relief but not a turning point for affordability.

Analysts noted that the Fed's policy move does not directly set mortgage rates. It affects what banks pay to borrow money from each other, which in turn influences the rates offered to consumers. Banks had already started cutting some mortgage rates in anticipation of the Fed action, suggesting further declines may be limited even after the rate cut this week.

Powell told journalists on Wednesday that lower rates could boost demand and help builders, but he cautioned that it would take a sizable shift in policy to meaningfully move the housing sector. "Most analysts think it would have to be pretty big change in rates to matter a lot for the housing sector," he said, adding that officials remain wary of permitting inflation to rise.

For buyer Aileen Barrameda in Los Angeles, high mortgage costs remain a hurdle, but she plans to enter the market in the coming months. "If I have the means to get in the market, I might as well get in now, because homes are just going to get more expensive," she said.

The broader market picture remains tight. The supply of homes for sale is restrained as many homeowners, who locked in pandemic-era rates in the 3% range, are hesitant to sell and lose those favorable terms. As a result, even as rates tick down, affordability problems persist. Julia Fonseca, an associate finance professor at the University of Illinois Urbana-Champaign, said roughly 80% of mortgage borrowers have locked in a rate below the current average of 6.35%, underscoring why any rate relief may be limited in practice.

First-time buyers are watching closely. Kristin Carlson, who has been looking in the Boise area for four years while renting, said easing mortgage rates over the past weeks makes her "just that much closer to pulling the trigger." She noted that the choice of neighborhood, home size and builder now weigh as heavily as borrowing costs in deciding what she can buy.

In Boise, Redfin agent Nicole Stewart said a fall in mortgage rates has encouraged some activity. "Over the span of just one weekend earlier this month, Ms Stewart wrote four offers and put three deals under contract," she noted, reflecting growing attention even if the overall impact remains modest.

Bank of America’s Matt Vernon cautioned that even as rates dip, the big-picture relief may be limited. "There’s cautious optimism that we're headed in the right direction," he said, but added that the dip does not, on its own, solve the market’s underlying challenges. "I don’t think it’s necessarily changed buyers' perception of the challenges in the market, but it’s certainly got their attention."

The housing market’s path remains tied to inflation dynamics and the pace of further policy moves. Some observers say a further easing would be needed to meaningfully loosen conditions, while others warn that rising inflation could push rates higher again if markets expect the Fed to pause cuts.

For now, buyers and sellers alike are navigating a market characterized by high costs, limited supply and a wait-and-see approach, even as the latest rate cut provides a modest, partial relief rather than a cure for affordability or inventory constraints.