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Writer's pictureJessica Dorcey

Did Jerome Powell Just Doom the Housing Market? Understanding the Real Impact of Fed Rate Cuts



You may have seen headlines suggesting Jerome Powell and the Fed’s latest rate cut could doom the housing market, but let’s clear something up right away: Fed rate cuts don’t directly impact mortgage rates. If you’ve seen my latest post on Instagram (@jessicadmackey), you’ll know that while the Fed’s actions can influence the broader economy, mortgage rates are tied more closely to long-term Treasury bond yields, not the Fed’s short-term rates.

The Real Factors to Watch:

When it comes to mortgage rates, here’s what matters more:

  • Bond Yields: Mortgage rates often track 10-year Treasury bond yields. If those yields fall, mortgage rates typically follow.

  • Inflation Trends: As inflation rises, mortgage rates tend to increase as well, to offset inflation risks for lenders.

  • Market Demand: The level of demand for mortgage-backed securities also influences rates.

Positives of the Fed Rate Cut for Buyers

While the Fed’s move doesn’t directly control mortgage rates, it can still have indirect benefits:

  • Lower Consumer Debt Rates: If you have other debts like car loans or credit cards, the Fed rate cut might lower those interest rates, improving your debt-to-income ratio and boosting your mortgage approval chances.

  • Economic Confidence: Lower rates might spur overall economic growth, which can increase consumer confidence and stabilize the housing market.

Potential Downsides: Supply & Demand Imbalances

While a lower rate environment can boost buyer interest, inventory is still tight in many markets, which could push prices even higher. In my Instagram post, I highlighted the risk of increased competition driving up home prices, and this is something to be mindful of if you’re looking to buy.

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