Interest Rate Cut: What Does This Mean For Homebuyers?

The Federal Reserve cut interest rates and said additional cuts could come before the end of 2024.

The September cut is more than exports predicted, and the decision could help those trying to borrow money for a car or home.

Although the FED doesn’t directly control home mortgage rates, eventually, the impacts could be felt in the housing market.

Many experts, including Steve Wyett with BOK Financial, weren't predicting the 50-point rate cut. However, Wyett says it does mean good news for inflation. "It doesn't mean prices are going down, they're just going up more slowly, but we're not back to the FED's 2% target yet,” said Wyett.

While the rate cut was a step in the right direction, Wyett says another deep cut isn't necessarily a good thing. "If the economy is declining or unemployment is rising rapidly and they have to do a 50-point cut, that's not the outcome that we want. So, this is about getting rates down to that 3-3.5% target over the next eight,12, or 16 months," said Wyett.

While the rate cut does provide some good news, it’s still not a great time for first-time home buyers. “I think the technical term that we're using for the housing market from an economic standpoint is it's a mess,” said Wyett. Wyett says if you’re already in the housing market, you’re probably on a good track. “You probably have a low-rate mortgage that you locked in during the pandemic and as interest rates went up that rate did not go up so your housing value is fine and your home value is probably going up,” said Wyett.

But, if you’re a first-time home buyer, you probably aren’t having the best luck. “Man, it is really hard because prices have stayed high, now mortgage rates are up,” said Wyett. “Here's the key aspect to housing: this is what's hard about the interest rate scenario, this is a supply problem.”

Wyett says coming out of the financial crisis, there was an under-investment in housing of roughly one million homes per year. Based on the population growth over the last decade, Wyett says this puts the national scale at five million homes short.

“I would offer this though for home mortgage rates if you're a borrower hoping we're gonna get back to 3% rates or 4% it might surprise you to hear me say this but I'm gonna say I hope it doesn't,” said Wyett. “Because if we get back to rates that low, that probably means we've had a pretty bad economic outcome; we're in a recession, and unemployment is a lot higher.”

Wyett says - if the FED is able to get back to that target goal, it means economic growth is staying positive, unemployment levels are down, and we're still seeing lower rates in the future. "The issue with home mortgage rates is gonna be: does inflation continue to come down and can the FED get to their target over the next 3 months,” said Wyett. “The idea of prices improving anytime soon looks a little difficult.”

The FED has two more meetings before the end of the year, where at least another quarter-point cut is expected. Wyett says his hope is to get back to the 3% range over the next year.