By bizn_fun 
The Federal Reserve’s interest rate decisions do not directly affect mortgage rates. But they do affect what banks charge each other to borrow money.
That then influences what banks charge their own customers for loans such as mortgages as well as the interest rate they pay on savings.
However, US banks had already cut mortgage rates in anticipation of the Fed rate cut that happened this week, meaning mortgage rates may not fall much further. Prospective home buyers waiting for substantially more easing might be disappointed.
Fed chair Jerome Powell, speaking to journalists on Wednesday, said as much.
“Most analysts think it would have to be pretty big change in rates to matter a lot for the housing sector,” he said, while acknowledging that lower interest rates might boost demand and help builders.
Meanwhile, the risk of rising inflation could push mortgage rates up if banks anticipate this means the Fed will not cut rates any further any time soon. The Fed and other central banks tend to avoid cutting borrowing costs up if they feel inflation is too high.
“I do think that people are expecting a big impact from this,” said Nicole Stewart, a real estate agent with Redfin in Boise, Idaho, referring to the Fed’s rate cut this week.
“I’ve been trying to inform most of my buyers, as well as my sellers, that we’ve already seen the majority of what’s going to happen.”
Ms Stewart said a fall in mortgage rates over the past month has encouraged some buyers. Over the span of just one weekend earlier this month, Ms Stewart wrote four offers and put three deals under contract.
“A huge increase from anything in past few years”, she said.
But the US housing market remains unaffordable for many people. That issue is unlikely to be resolved by future Fed decisions, or by the recent dip in mortgage rates.
Many homeowners secured unusually low mortgage rates – in the 3% range – at the height of the coronavirus pandemic, which they are hesitant to give up by selling their home. As such, homeowners who might otherwise downsize are choosing to stay put, reducing the amount of housing available for purchase and driving up home prices.
Roughly 80% of mortgage borrowers have locked in a rate below the current average of 6.35%, said Julia Fonseca, an associate finance professor at the University of Illinois Urbana-Champaign.
While every decline in mortgage rates helps loosen the market a little bit, there are no signs of substantial relief on the horizon, Ms Fonseca said.
“We might be still a long way from normalising these markets,” she said.