Fed lowers interest rates again.

Will mortgage rates follow? Economists and agents offered different opinions on how the 2nd rate cut of the year will impact housing market

by Patrick Kearns Staff Writer for Inman News. September 18, 2019

The U.S. Federal Reserve announced Wednesday it would cut interest rates for the second time this year, after having not dropped them since the 2008 recession. Real estate economists are split on the immediate impact it will have on mortgage rates and the housing market.

The Fed is cutting interest rates 25 basis points from between 2 percent and 2.25 percent to between 1.75 percent and 2 percent. It had previously signaled it would not hike rates at all in 2019 – after four rate hikes in 2018 but now it actually cut rates for the second time.

Tendayi Kapfidze, the chief economist at Lending Tree, said the impact on mortgage rates can often be ambiguous. “Since the last rate cut, mortgage rates are down 19 basis points and were down 26 basis points at the low, essentially matching the basis points Fed cut,” Kapfidze said. “However, this is the exception and not the rule.” “Federal funds and mortgage rates are not directly linked,” Kapfidze added. “Rather, they are often influenced by the same factors, yet rarely impacted to the same extent.”

Ruben Gonzalez the chief economist at Keller Williams told Inman news that market anticipation of the Fed’s actions has already impacted long-term rates, which does influence mortgage rates. However, unless there’s uncertainty surrounding Fed policy decisions, the market doesn’t usually see a lot of movement in mortgage rates as a direct result of Fed announcements.

“Trends in mortgage rates right now are being driven primarily by impact of trade policy and global economic pessimism on long-term treasuries,” Gonzalez said. “Recently, we have seen some stabilization of treasuries, and mortgage rates have risen slightly. However, without some genuine resolution to geopolitical tensions around trade, mortgages rates are likely to remain low for the remainder of the year.”

Some brokers don’t believe the decision will help buyers and the housing market. While affordability of cheap money helps buyers, the main factors they use in deciding to buy are the stability of the current economy and an optimistic outlook on the future. Neither is happening now. A rate cut will not cure the disease caused by the administration but rather be a temporary treatment at best.

Many real estate brokers however actually believe the rate cut will eventually strengthen the housing market. “Buyers will not necessarily see interest rates drop immediately, however, many believe that a rate cut will benefit the economy overall, which will help consumers have greater purchasing power and feel confident in their ability to manage a major transaction.”

Chowdhury added that, while he agrees that lower mortgage rates were providing a boost to the struggling market, drawing the parallel between a surge in construction and the housing market receiving a boost is giving developers too much credit.

On Wednesday morning, the U.S. Census Bureau reported that new privately owned homes authorized by permits jumped 12 percent year-over-year, while privately owned housing starts climbed 6.6 percent year-over-year.