How The Feds Rate Cuts Could Impact Homebuyers

Will homebuyers soon see lower mortgage rates?

Whether you’re a first-time homebuyer or a homeowner, here’s how The Federal Reserve’s latest rate announcement could impact you.

Key takeaways:

• The Fed has just announced a second consecutive rate cut, reducing interest rates by 0.25%.
• Lower rates can help you qualify for a larger mortgage — but they can also heat up the real estate market and increase home prices, impacting homebuyers, upsizers and downsizers.
• Lower interest rates may affect mortgage payments for some homeowners, while market changes in response to a rate cut may help you build equity in your home.

If you’ve been following the real estate market, the Federal Reserve’s announcement today likely comes as a relief.

After an initial rate cut of 50 basis points, or 0.5%, in September, the Fed has reduced rates by an additional 0.25% — an announcement that signals a further departure of the elevated rate environment of the past few years.

This announcement can directly affect new mortgage rates, as well as have ripple effects on real estate that is felt by first-time homebuyers and current homeowners alike. Whether you currently own a home or are looking to buy, here’s how today’s news may impact you and how to map out your next steps.

Why do rate cuts affect real estate?

The interest rate set by the Federal Reserve (also called the Fed) influences the interest rate on several financial products, from the interest you earn on the balance in your savings account to the interest you pay on loans, lines of credit and mortgages.

The Fed’s interest rate directly impacts variable-rate mortgages, so when rates go down, the rate on adjustable-rate mortgages also decreases.

In addition, borrowers can open new fixed-rate mortgages at a lower interest rate than they would have before the cut.

Impact on first-time homebuyers

If you’re looking to buy your first home, this week’s rate cut works in your favor. You’re likely to start being offered lower rates than you were previously. And, because interest rates impact how much you can borrow, you may also find you qualify for a larger mortgage.

These changes can help bring homeownership within reach for you. Plus, buying when rates are low helps you lock in a lower mortgage rate, saving you money on interest over the loan’s lifespan.

But there’s a catch: Other would-be buyers will see their borrowing capacity increase as well, creating more competition in the market. As competition increases, housing prices generally go up, so it may be harder to purchase the home you want.

Whether you’re a current homeowner with no plans to move or working toward purchasing your next home, this week’s rate cut affects you, too.

For one, rate cuts directly impact the interest rate on adjustable-rate mortgages (ARMs), meaning households with an ARM may soon see their monthly payments decrease. This can provide welcome relief to your budget, allowing you to allocate more of your income to other expenses or financial goals.

This week’s rate cuts don’t change existing fixed-rate mortgages, but they generally lower the rates borrowers are offered on new mortgages. If you purchased your home when rates were higher, consider contacting a mortgage specialist to determine whether you’re able to refinance at a lower rate to save money on interest.

Lower interest rates may have an indirect effect on your wealth, too. Rate cuts tend to coincide with more buyer activity, which heats up the real estate market and pushes home prices higher. As a result, you may see your home values increase, which unlocks additional equity in your home.

That added equity helps expand your financial options. If you’re looking to upgrade, a more competitive real estate market — and rising prices — may help you sell your home and provide a substantial down payment for your next home. And, if you’re looking to downsize, a more seller-friendly real estate market can help you get the best price for your home, helping to maximize cash on hand following your move.

Even if you have no plans to move, equity in your home can be a powerful financial tool to reach your goals. A home equity line of credit (HELOC), for example, allows you to borrow against your home equity to fund a renovation, dream vacation and more.

How have existing rate cuts affected real estate?

This week’s announcement is the second in a series of expected rate decreases — the first being a 0.5% cut announced in September of 2024. And if you haven’t seen the market rapidly shift, you’re not wrong.

While rate cuts do impact real estate, the effects take time to ripple out across the market. Some realtors believe that rate cuts are already priced into current home values, so it may take time — or additional rate decreases — to see housing prices change. Buyer sentiment also plays an important role in real estate: Buyers who believe more cuts are on the way may prefer to wait to buy, dampening demand that would otherwise increase housing prices.

How to set yourself up for success after a rate cut

Because there are so many variables influencing real estate, it may take months or years to see the full impact of interest rate fluctuations. The good news? That gives you time to craft your plan.

Here are some strategies to consider as you map out your next steps.

If you’re a first-time homebuyer

Having your financial ducks in a row helps you move quickly as you shop for homes and submit offers. Consider reaching out to a mortgage specialist to determine how much you can now afford and assist you with gathering the documents you need to streamline the mortgage pre-approval process.

This way, you’ll be ready to put in an offer when you find the right home and maximize your chances of a winning offer.

If you’re hoping to upsize or downsize

Consider reaching out to a mortgage specialist and a real estate professional to discuss your goals. A real estate professional can offer market insights to let you know the approximate value of your current home, while a mortgage specialist can help you determine how much home you can afford.

Your mortgage specialist can also connect you to other financial professionals who can work with you to create a financial plan, such as how best to use the proceeds from selling your current home.

If you’re staying in your current home

Even if you’re not planning to move, a rate cut can be a great opportunity to revisit your financial plan.

Consider talking to a financial advisor about how to make the most of your home equity and discuss whether a HELOC might help you reach your financial goals. You can also discuss the potential benefits of refinancing your mortgage and find a mortgage that meets your needs.

Get the support you need to make the most of the rate cut

Our team of financial advisors and mortgage specialists is here to support your financial goals. To learn more about our home lending solutions and find an expert near you, connect with us today.