by Marcus Thomas 
After months of anticipation, the Federal Reserve cut interest rates on Wednesday by half a percentage point. It will have an impact on the housing market — but it’s unlikely to make a huge difference for those struggling to afford a home.
Let’s take a look:
1.Mortgage rates might not actually drop much right now
Mortgage rates have been high recently, particularly in comparison to the historic lows during the COVID-19 pandemic, when they fell below 3%. Rates rose to nearly 8% last year due to a strong economy and inflation. However, they have recently dropped to 6.2%, the lowest since February 2023, partly in anticipation of Federal Reserve rate cuts. Economist Charlie Dougherty expects rates to remain around 6.2% by the end of this year but predicts a further decline to about 5.5% by the end of 2025, still above pre-pandemic levels.
2. Lower mortgage rates could actually mean higher home prices
Lower mortgage rates may not simplify home buying; instead, they could increase competition and drive up home prices. More buyers entering the market may complicate the situation for first-time homebuyers, who face a significant shortage of starter homes. While there is more inventory of larger homes, the lack of affordable options for new buyers remains a challenge. Many potential buyers regret not purchasing earlier during the pandemic when rates were low, as current prices are much higher.
3.Dropping interest rates could lead to more housing supply
High home prices are largely due to a significant lack of housing supply in the U.S., with millions of units needed to meet demand, especially from millennials forming households. High interest rates have made it difficult for homebuilders, particularly smaller developers, to start new projects. However, anticipated rate cuts could ease financing for these builders, encouraging them to increase construction. As more homes are built, it may help alleviate demand and stabilize prices, though the impact will take time to materialize.
4. Affordability will still be a problem
Lower mortgage rates can reduce monthly payments for homebuyers, but with home prices having risen about 50% since early 2020—outpacing income growth—affordability remains a major issue. Many homeowners refinanced during the pandemic to lock in low rates, with nearly 60% of active mortgages below 4%, making them hesitant to sell and face higher rates. Although recent rate drops have not revitalized the housing market, home prices and inventory levels remain high and unlikely to improve significantly in the near future.
In other words: It will take more than the Fed’s rate cut to fix America’s housing problems.
