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The Federal Reserve’s first interest rate cut in four years will influence hiring, inflation, mortgage rates, and the housing market. Mortgage rates are expected to drop, potentially easing the housing affordability crisis for homebuyers and renters. However, these effects may not be immediate, according to Steve Rick, Chief Economist at TruStage.

Housing Market Faces Supply and Demand Challenges

Since the pandemic, the housing market has struggled with an imbalance between supply and demand. High home prices and a lack of available homes have made it harder for Americans to afford mortgages or rent. Experts believe the Fed’s rate cut could offer relief, but many lenders have already factored in the change. As a result, mortgage rates may not drop significantly until further cuts occur at the upcoming Federal Reserve meetings in November and December.

Mortgage Rate Reductions May Take Time

“Although the effects won’t be immediate, rate cuts should lower mortgage rates in the coming months,” said Steve Rick. Lower mortgage rates may increase housing supply over time.

Falling rates could help more people buy homes, but the availability of houses remains limited. Buyers may face short-term challenges, especially if more people compete for the same homes. This competition could lead to price increases in some areas, according to Joseph Brusuelas, Chief Economist at RSM.

Will Lower Mortgage Rates Boost Housing Supply?

Not all experts agree with this outlook. Constance Hunter, Chief Economist at the Economist Intelligence Unit, believes that lower mortgage rates will encourage more homeowners to sell. Many homeowners have been hesitant to sell due to high mortgage rates, which make it difficult to finance their next home. With rates falling, Hunter expects more properties to hit the market, increasing the housing supply.

“We’re likely to see more homes listed as rates drop,” Hunter said. “This shift can help with both supply and affordability by lowering financing costs for buyers.”

Conclusion

The Fed’s rate cut could reduce mortgage rates and improve the housing market, but the changes may take time. Prospective buyers should prepare for limited housing inventory and higher competition in the short term as the market adjusts.