Federal Reserve Rate Cut: What It Means for Homebuyers and the Housing Market
The Federal Reserve has made its first benchmark rate cut in nine months, lowering rates by a quarter point as widely anticipated by economic experts. While this news might seem like immediate relief for homebuyers struggling with high borrowing costs, the reality is more nuanced. Mortgage rates have already declined in anticipation of this move, with the average 30-year fixed-rate mortgage dropping to 6.35 percent as of September 11—its lowest level in months. As Melissa Cohn, a 43-year veteran of the mortgage industry explained, “The bond market has already baked this cut into today’s yields. Now we go back to data watching for the direction of mortgage rates for the rest of the month.” This highlights an important distinction: mortgage rates aren’t directly tied to the federal funds rate but instead typically follow the 10-year Treasury yield, which responds to broader economic conditions and Federal Reserve policies.
Financial analysts caution against expecting mortgage rates to move in lockstep with the Fed’s rate cut. Stephen Kates of Bankrate noted that while Fed decisions influence mortgage rates, other factors like inflation expectations, investor demand for mortgage-backed securities, and overall economic conditions often have a more significant impact. Danielle Hale, chief economist at Realtor.com, believes rates could edge somewhat lower in the immediate term, likely hovering in the low 6 percent range without substantial additional downward momentum. This represents meaningful progress considering mortgage rates have already dropped almost 70 basis points from their 2025 high and about 150 basis points from their 2023 peak. These decreases create refinancing opportunities for those who purchased homes during peak rate periods and increase buying power for prospective homebuyers, potentially improving housing demand and boosting home sales.
The current rate environment offers some relief for homebuyers, but experts caution it won’t completely solve affordability challenges. Daryl Fairweather, chief economist at Redfin, pointed out that even with rates potentially dropping to 5.5 percent, housing costs may not return to “normal” levels until 2027 or later. This persistent affordability gap is underscored by the fact that the typical U.S. household still earns about $25,000 less than needed to afford the median-priced home. While lower rates make purchasing more attractive for some buyers, elevated home prices continue to pose significant barriers. For existing homeowners, however, the drop in rates since January has created refinancing opportunities, particularly for those currently holding higher mortgage rates.
Looking ahead, economic experts see uncertainty rather than a clear path toward continued easing. Chen Zhao of Redfin characterized Wednesday’s decision as signaling “uncertainty more than a clear path toward easing,” while Fairweather suggested significant further rate declines seem improbable since the expected 25 basis-point cut was already priced into the market. Yuval Golan, CEO of real estate financing platform Waltz, noted that mortgage rates have already been declining in recent months and doesn’t expect them to fall meaningfully further through the rest of 2025. This perspective acknowledges that current rates already reflect market expectations for future Fed cuts, lower long-term inflation, and a weakening economic outlook.
Nadia Evangelou from the National Association of Realtors offered a more optimistic outlook, suggesting mortgage rates could potentially reach 6 percent soon. Unlike last year’s temporary dip followed by a quick increase, today’s softer job market might keep mortgage rates lower for longer. Evangelou’s analysis suggests that if rates drop to 6 percent, approximately 5.5 million more households could afford to purchase a home, potentially increasing sales by 3 percent in 2025 and 14 percent in 2026. She estimates that about 10 percent of these newly qualified households would actually purchase within the next 12 to 18 months, representing a significant boost to market activity and mobility.
While the Fed’s rate cut and declining mortgage rates provide some relief, they alone cannot solve the U.S. housing affordability crisis, which has been primarily driven by supply issues. Evangelou emphasized the continued need for more housing supply, especially at price points where demand is strongest. Without adequate inventory, buyers will still face tough competition despite improved purchasing power. The good news is that inventory levels are indeed rising across the country, with 1.55 million units of existing homes now on the market—the highest since 2020. This combination of greater purchasing power and increasing supply suggests that both first-time buyers and sellers may soon have more flexibility in the housing market, potentially unlocking mobility for sellers who have been hesitant to list their homes due to concerns about affording their next purchase.
