On Wednesday, the Federal Reserve made another rate cut, reducing its key interest rate by a notable half percentage point. The move, intended to address a weakening job market, exceeded expectations and brought optimism to investors looking for decisive action.

However, despite this significant cut, real estate experts predict that mortgage rates may not be heavily impacted. Sources such as Axios, NPR, and National Association of Realtors Chief Economist Lawrence Yun highlight that mortgage rates have already hit their lowest levels since February 2023, making further declines unlikely. With current lower rates, homebuyers’ purchasing power has risen by about $50,000 for those budgeting $2,000 per month for a mortgage. According to Yun, “Consumers who were priced out by higher rates earlier may now be able to re-enter the market.”

Fed Chair Jerome Powell acknowledged that, despite cooling inflation, housing costs remain stubbornly high. “Housing inflation is the one piece that is kind of dragging a bit… It’s been slower than we expected,” Powell stated during the post-meeting press conference. He expressed confidence that high rent and home prices would eventually ease but pointed to the limited supply of available homes, a factor outside of the Fed’s control, as the biggest hurdle in the housing market.

In my opinion, the rate cut could help unlock stagnant housing supply. Lower interest rates may encourage hesitant homeowners to sell, while also promoting new construction, as reduced construction and bridge loan costs make development and property flipping more affordable. For example, a recent hard money financing transaction I closed featured an interest-only mortgage with an annual percentage rate of 11.5%, down 100 basis points since last winter.

Listing agents may benefit as more homeowners feel encouraged to enter the market, anticipating that buyers will take advantage of reduced borrowing costs. The buyer in my most recent Bronx closing secured a 6.25% interest rate, likely locked in about 30 days ago.

The immediate and long-term effects of the rate drop remain to be seen. However, with a previously sluggish real estate market showing signs of revival, and interest rates trending lower, the housing sector could be poised for improvement. As mortgage rates improve, homeowners who have felt “locked-in” by their low-rate mortgages may be more willing to sell. Currently, over 76% of mortgage holders have rates below 5%, with 57% enjoying rates under 4%. “As rates move down, more of them will be able to justify selling their homes,” said David M. Dworkin, CEO of the National Housing Conference.