Prediction: The Fed’s Massive Rate Cut Will Impact the Housing Market in These 3 Ways

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The Fed just lowered interest rates, and more cuts are likely coming. Read on to see what that might do to the housing market. [[{“value”:”

When inflation started surging in 2021, the Federal Reserve had no choice but to respond with interest rate hikes the following year. Rising living costs were getting out of hand, and consumers needed relief. Since inflation has cooled recently, the Fed doesn’t need to keep its benchmark interest rate quite as elevated.

And so the central bank made its first rate cut of 2024 on Sept. 18, lowering its benchmark interest rate by half a percentage point. In light of that, consumers are likely to enjoy lower interest rates on products like credit cards and auto loans in the coming weeks. They’re also likely to see their savings account APYs decrease.

The Fed’s rate cut decisions also have the potential to impact the housing market in a number of ways. Here are some big changes to gear up for in the coming months.

1. Lower mortgage rates

When the Fed lowers its benchmark interest rate, borrowing rates tend to decline across the board. That extends to mortgage rates.

In fact, the very next day following the Fed’s first rate cut, the average 30-year mortgage rate fell to 6.09%. And that average rate is likely to keep dropping slowly, to the point where there may be some serious relief in sight for buyers in 2025.

2. More inventory

A big reason 2024 has been a tough year for home buyers is that real estate inventory has been sorely lacking. But now that mortgage rates are starting to drop, housing inventory is likely to increase.

Many homeowners didn’t want to list their properties for sale this year because doing so would’ve meant giving up competitive mortgage rates and swapping them for more expensive loans. Now that it’s getting cheaper to sign a mortgage, homeowners may be more willing to part with their current loans and move.

3. A return to bidding wars

Bidding wars were rampant in 2021 as home buyers tried to capitalize on the record-low mortgage rates that were available that year. Today, we’re nowhere close to the sub-3% mortgage rates borrowers enjoyed back then.

But if rates continue to fall, it could put more people in a position to buy a home. That has the potential to lead to more competition and a return to bidding wars.

From a seller’s perspective, bidding wars are good since they tend to drive home prices up. But from a buyer’s perspective, they can spell the difference between being able to afford a home or having to sit out the market and wait.

Gear up for big changes

There’s a good chance we’ll see a meaningful shift in the housing market in the coming months. If you’ve been waiting on the sidelines to buy, now’s the time to gear up to make a move.

You may want to bank some extra cash to boost your down payment funds. Building up extra savings to cover moving expenses is a good idea as well.

It’s also important to check your credit report and make sure it doesn’t contain errors. While you’re at it, check your actual credit score. If you’re not happy with that number, you have an opportunity to take steps to boost it, whether by paying bills on time in the coming months or reducing the balances you’re carrying on your credit cards.

In fact, the less debt you have overall, the easier it might be to qualify for a mortgage. And the lower your credit score, the more competitive a mortgage rate you’re likely to get.

Finally, start researching home prices in your area to see what’s out there. Then, line up a real estate agent if you’re serious about buying a home in the near term. Once the above changes take place, seasoned real estate agents might get busy. So now’s a good time to sign up to work with one before the top agents in your area get overloaded with clients.

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