Federal Reserve interest rate cuts could help those looking to buy a home

CHATTANOOGA, Tenn. — Many Americans have been waiting for this with bated breath: The US Federal Reserve lowered interest rates on Wednesday for the first time in four years.

This half-percentage point cut in the federal funds rate will impact the cost of borrowing for Americans and businesses. This includes things like auto loans, credit cards and mortgages.

We spoke to experts in the real estate market who believe this reduction could be beneficial for those looking to buy or sell a home.

Jerome Powell, Chairman of the US Federal Reserve, says …

“This decision reflects our growing confidence that, with an appropriate re-orientation of our policies, we can maintain the strength of the labor market in an environment of moderate growth and a sustained reduction in inflation to two percent.”

This is the first rate cut by the Federal Reserve since March 2020.

Dr. Bento Lobo, Head of the Department of Finance and Economics and Professor of Finance at UTC, tells us…

“The Fed has started cutting interest rates, and we expect a series of further rate cuts to follow. That is significantly lowering interest rates across the economy.”

According to Dr. Lobo, there are several categories where consumers could feel immediate effects.

“The immediate impact tends to be on variable rate products, like credit cards and HELOCs, and yes, it does have an impact on consumer spending,” says Dr. Lobo.

He says it will have other implications for Americans as well.

“For example, you can expect mortgage rates, rates on auto loans, business loans, equipment loans, home equity loans, etc. to start to fall.”

A welcome respite for those looking to buy a home.

“The first things to go down are things like home equity lines of credit, home builder loans and any other business loans or business lines of credit.”

Corey Ballew is a real estate agent and says he has already noticed a decline.

“They've already gone down this year, even in the last few months. We've had some homebuyers who used to be at about 7% but are now at about 5.5%. So that's a huge drop,” Ballew says.

Zachary Nelson of First Bank Mortgage says current mortgage rates are the best in nearly two years because of this expected rate cut.

“It's stair-steps. So as we slowly move down and get closer to our goal, it's going to take a 6- to 12-month cycle before we can say, 'Hey, rates are now a full percent better than they were before.' I can't tell you when that will be.”

Ballew says he has some advice for those looking at the market now.

“Before someone starts looking at homes and buying, they should get a preliminary approval from a local mortgage lender and also stay in touch with them because if they received an offer four weeks ago, they may want to double-check what the interest rate is,” advises Ballew.

Several politicians, including Chairman Jerome Powell, expressed confidence that inflation had been largely contained.

It has fallen from a peak of 9.1 percent in 2022 to 2.5 percent last month, and further cooling is expected as oil and gas prices have fallen in recent weeks and are expected to continue falling in the fall, allowing the central bank to focus its full attention on keeping unemployment as low as possible.