KEY TAKEAWAYS
- More homebuyers are returning to the housing market, inspired by the Federal Reserve’s recent rate cut.
- Homebuyers locked in nearly 70% more mortgages on Sept. 23 than the month prior, and mortgage-purchase applications rose by 10% compared to last year following the rate cut.
- Mortgage rates hit their lowest level in two years Thursday, a week after the Federal Reserve cut its influential federal funds rate.
Homebuyers are finally returning to the housing market after the Federal Reserve cut its influential interest rate for the first time in four years.
Before the central bank cut its federal funds rate, potential homebuyers hesitated to enter the housing market as high mortgage rates priced them out. Fewer homes were listed as sellers were reluctant to trade in their low interest rates, pushing up the price tag on homes as well.
After the central bank cut interest rates last week, homebuyers have seemingly become more optimistic about the housing market. According to data from Optimal Blue and analyzed by Redfin, homebuyers locked in nearly 70% more mortgage rates on Sept. 23 than in the month prior.
The Fed Interest Rate Cut Inspired Potential Homebuyers’ Return
Banks set mortgage rates based on several factors, including the fed funds rate. Potential homebuyers have been watching to see if this rate cut and future actions by the central bank will impact the housing market.
New data from Freddie Mac Thursday showed that interest rates hit a two-year low just a week after the Fed’s meeting. The 6.08% average rate on a 30-year, fixed-rate mortgage is still high by historical standards but is nearly 2 percentage points lower than the peak from last October.
Mortgage-purchase applications rose by more than 10% month over month and pending home sales fell 3.1% over the four weeks ending Sept. 22, the smallest decline in five weeks, according to Redfin’s Homebuyer Demand Index.
“One new client decided to start their home search last Thursday because of the Fed’s rate cuts on Wednesday,” said Andrew Vallejo, a Redfin real estate agent in Austin, Tex. “They immediately reached out to a real estate agent and they’re working with a lender.”