The U.S. Federal Reserve's decided Sept. 18 to cut baseline interest rates by .50%, the first cut in more than two years. This is a promising signal for the overall economy, but holds special importance in the housing market.

Although mortgage rates do not directly mirror Fed changes, they tend to follow their direction over the long run. Over the past year, mortgage rates have dropped 1.5 percentage points, especially in the last three-months leading up to the cuts. Home price growth is slowing, inventory is rising, and incomes are increasing.
A brighter real estate environment could boost consumer confidence.

Inflation saw more positive data late last week, as the Personal Consumption Expenditure (PCE) index for August (released Sept. 27) came in at an annual rate of 2.2%. That number was below Wall Street estimates and the lowest since early 2021. The PCE - the Fed’s favored inflation gauge - often provides clues about upcoming monetary policy.

Declining inflation provides a stable backdrop to reinforce consumer spending, which has proven to be surprisingly robust despite recent headwinds.

The U.S. economy added 254,000 jobs in September 2024, exceeding expectations for 142,500. The July and August jobs reports were also revised higher, up 55,000 and 17,000, respectively, defying fears of a softening labor market.
The unemployment rate fell to 4.1% from 4.2% in August.

Wage growth rose by a firm 0.4% month-over-month and 4% year-over-year.

Mortgage applications surged 14.2% the week of the rate cut, the largest increase since mid-August. Falling mortgage rates boosted both refinance applications (up 24%) and home purchase requests (up 5%). Refinances cooled slightly the following week, but were still up 186% from the same week one year ago!

With expectations of further rate decreases, potential buyers may find renewed motivation, and a rise in housing inventory—up 34.6% in August—could offer more choices.

Though falling mortgage rates help improve how much home buyers can afford, high home prices and low inventory remain a challenge for many.