rewrite this title The Fed Cut Rates. Will It Help the Housing Market? – NerdWallet

The Federal Reserve voted Sept. 17 to cut the federal funds rate by one quarter of a percentage point. It was a move long anticipated by financial markets, and also by regular folks watching the housing market: Potential home buyers who’ve been sidelined by high mortgage interest rates and newer homeowners hoping to refinance their loans.

The Fed uses a key short-term borrowing rate to influence the broader economy. Those changes don’t directly alter mortgage interest rates, and in recent cycles, rates have moved ahead of official decisions from the central bankers. Mortgage rates tend to take their cues from bond markets, and in the run-up to September’s meeting, average rates for 30-year, fixed-rate loans hit their lowest levels in nearly a year.

Afterward, mortgage rates rebounded a bit as markets worked through the news that came with the Fed cut. During his post-announcement press conference, Federal Reserve Chair Jerome Powell discussed the tension the current economy has created between the central bankers’ two key goals. The Fed aims to achieve “maximum employment,” and the weakening job market suggests lowering rates to give businesses a boost. But the bankers also want price stability, and an overheated rate of inflation could be cooled by raising interest rates.

By choosing to cut, the Fed governors basically decided that labor’s a more immediate threat. But in the press conference, Powell noted, “There are no risk-free paths now. It’s not incredibly obvious what to do.”

“Where mortgage rates are going to go is really dependent on the data that we get in the weeks to follow,” says Melissa Cohn, a regional vice president at William Raveis Mortgage. “There’s clearly no direction from Powell or from what the Fed has done today that says the rates are just going to march downwards.”

Since the pandemic dramatically altered the housing market, each new year gets touted as the year the housing market will finally normalize. As for 2025 … well, maybe 2026 will be the year. Rates may be lower, but mortgage interest rates aren’t the only thing holding back would-be buyers.

“Even though affordability had been improving a little bit in 2025, what really kept buyers on the sidelines this year was the frozen labor market,” says Orphe Divounguy, senior economist at Zillow. It’s not necessarily that people are buying (or not) because of a job change — but economic uncertainty can discourage making a major life decision like buying a home.

The dearth of buyers had listings gathering dust. Divounguy notes that in July, Zillow saw price cuts on 27.4% of listings — the highest percentage since data gathering began in 2018. “Sellers had come back in the spring, but then the buyers weren’t there,” Divounguy explains.

And by August, sellers were feeling the chill, too, dropping the number of new listings. Again, a seemingly weaker economy likely played a role: In a 2024 Zillow survey, 37% of sellers cited getting a new job as a reason for selling. “There was a window there for buyers that could afford to buy,” Divounguy says, but with sellers retreating, “that window, at least for 2025, seems to be closed.”

Confident buyers can certainly still take advantage of the current rate environment — but they should be aware that inventory may be limited, even for fall. Divounguy is hopeful that in 2026, “Fed rate cuts could thaw the labor market,” getting both buyers and sellers back in the game. A major rate-cutting cycle from the Fed would likely usher in lower mortgage rates, too.

A substantial subset of current homeowners looking for rate relief are in better luck.

“We’ve seen mortgage rates in the past couple years approach as high as almost 8%,” so relatively new home buyers could be ready to refi, notes Danielle Hale, chief economist for Realtor.com. “Even earlier this year there was a period when rates were close to 7%. Now that they’re back under 6.5%, some people who bought as recently as this year may be in a position where refinancing makes sense.” For a refi to be worthwhile, you’d want to cut at least half a percentage point off your current rate.

Hale also points out that if you’re starting over with a new 30-year loan, you’re getting additional upfront savings. The longer term spreads your balance over more payments, bringing the monthly cost down (though at the same time, the total interest paid will be higher because it’s a longer loan). “If you’re refinancing for a cashflow reason and you don’t mind tacking a couple extra years onto the end of your loan, extending the term may not be a bad decision,” she says.

Refinance closing costs, generally 2% to 6% of the amount financed, are a consideration as well. Still, homeowners anxious to break free from a 7%-plus mortgage rate may decide that’s a price they’ll gladly pay.

But should you wait for rates to drop even lower? “We can’t get too greedy,” cautions William Raveis’ Cohn. “We’ve taken a big drop in rates over the course of the past month and we cannot expect it to continue at this pace.”

Hale concurs: “Even the best forecasters are still making an educated projection based on what we know today, and then the world can evolve in very surprising ways.”