The Fed cuts interest rates by half a percent in a big move for buyers and sellers
- The move is expected to spur more activity in the housing market
- The average rate for a 30-year mortgage sunk to 6.15 percent last week
Mortgage rates, which have already dropped in anticipation of the Fed’s announcement, may drop further given the larger-than-expected rate cut.
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The Federal Reserve reduced its benchmark interest rate by half a percent on Wednesday. The cut, the Fed’s first in four years, was welcome news for would-be buyers and sellers in New York City.
The Fed opted to slash rates by 0.50 percent—a larger cut than the quarter point cut some economists expected—and indicated it would further lower rates into 2026, depending on how the “economy evolves,” said Federal Reserve Chair Jerome Powell on Wednesday.
Mortgage rates, which already dropped in anticipation of the Fed’s announcement, may decline further in the future given the larger-than-expected rate cut. The average rate for a 30-year, fixed-rate mortgage sunk to 6.15 percent last week—its lowest level in two years.
The move could spur more apartment buying and selling in NYC, said Jonathan Miller, president and CEO of appraisal firm Miller Samuel.
“Consumers have been waiting for this for two and a half years,” Miller said. “I think it’ll bring more people in sooner.” But unleashing that pent-up demand will ultimately raise prices, he added.
How do interest rates impact mortgage rates?
The Fed has steadily raised its federal funds rate—the interest rate at which U.S. commercial banks lend to each other overnight—since 2022. It hoped the move would cool inflation, as banks would pass on those higher borrowing costs to consumers by raising rates on credit cards and mortgages. And inflation has slowed; in August, it reached its lowest level since February 2021.
Higher mortgage rates have constrained sales in NYC and dried up inventory because owners with mortgages in the 3 percent range are unwilling to put their properties on the market if it means borrowing at a higher interest rate.
Economists expected the Federal Reserve to cut rates on Wednesday—but the big question was whether it would cut rates by 0.25 percent or 0.50 percent. The larger cut indicates the Fed may be more worried about the economy, said Brett House, the professor of professional practice in the economics division at Columbia Business School.
“It seems that Fed officials are more worried about growth and employment than they're saying,” House said.
What does the cut mean for buyers and sellers?
Still, the Fed’s decision to cut rates on Wednesday is good news for buyers and sellers, House said.
“The big cut is a positive for both buyers and sellers, and should help make the market more liquid,” House said.
That's because mortgage rates should decline in the future as the Fed eases its campaign to curtail inflation, though New Yorkers shouldn't expect an immediate change in mortgage rates, cautioned Melissa Cohn, regional vice president at William Raveis Mortgage.
“I think that in the long term rates are coming down, but I think in the near term we’re trying to figure out what it means,” Cohn said.
Lower mortgage rates should help spur more buying and selling into next year, Miller added. Those lower rates also benefit owners who want to refinance. Home equity credit lines have been dropping in advance of the expected interest rate cut.
Next year "is probably going to see a higher level of activity than initially we thought 2024 would see,” Miller said. “This represents the beginning of a downward trend in rates.”
Louis Adler, co-founder of the brokerage REAL New York, expected the Fed’s move to encourage current renters “take a serious look” at buying. But the more New Yorkers that decide to buy, the higher prices will go, he added.
“I do believe that there’s a lot more buyers that stayed in the rental market—we felt it, we saw it, we heard it from our clients,” Adler told Brick Underground on Tuesday. “They're starting to think about buying again, and it's just another reason why prices are going to be shooting up.”
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