Could the interest rate of the federal reserve increase the American housing market?

Aileen Barrameda plans to buy a house in Los Angeles in the coming months. Stubborn mortgage rates – twice what she locked up at the start of the coronavirus pandemic – does not postpone it.

“If I have the means to go to the market, I could also enter now, because the houses will just become more expensive,” said Aileen.

The cost of housing is a key concern for Americans and a subject of political discussion. US President Donald Trump had hoped that Fed interest reduces would help Americans get mortgages.

The average rate on the 30-year mortgage, the most popular mortgage in the United States fell to 6.35% last week, according to Freddie Mac. This has marked the largest weekly decline in the past year and the lowest level in 11 months.

However, for buyers like Aileen, loan costs are not guaranteed to lower much more than they have already done despite the drop in the interest rate of the Federal Reserve on Wednesday.

Interest rate decisions of the federal reserve do not directly affect mortgage rates. But they affect what the banks are charged to borrow money.

This then influences what banks charge their own customers for loans such as mortgages as well as the interest rate they pay on savings.

However, American banks had already reduced mortgage rates in anticipation of the drop in Fed rates which occurred this week, which means that mortgage rates may not fall much further. Buyers of potential houses that await much more relaxation could be disappointed.

The president of the Fed, Jerome Powell, speaking to journalists on Wednesday, said so much.

“Most analysts believe that this should be a fairly significant change in rates for great importance for the housing sector,” he said, while recognizing that lower interest rates could increase demand and help manufacturers.

Meanwhile, the risk of increase in increase could increase mortgage rates if the banks predict that this means that the Fed will not reduce rates earlier. The Fed and other central banks tend to avoid reducing borrowing costs if they believe that inflation is too high.

“I think people are waiting for a big impact on this,” said Nicole Stewart, a real estate agent at Redfin in Boisse, Idaho, referring to the drop in Fed rates this week.

“I tried to inform most of my buyers, as well as my sellers, that we have already seen the majority of what will happen.”

Stewart said a drop in mortgage rates in the last month encouraged certain buyers. During only a weekend earlier this month, Ms. Stewart wrote four offers and put three offers under contract.

“A huge increase in everything in recent years,” she said.

But the US housing market remains unaffordable for many people. This problem is unlikely to be resolved by Fed’s future decisions or by the recent drop in mortgage rates.

Many owners have obtained unusually low mortgage rates – in the 3% range – at the height of the coronavirus pandemic, which they hesitate to abandon by selling their house. As such, owners who could otherwise repress the workforce chooses to stay in place, reducing the amount of the accommodation available to purchase and increasing the prices of houses.

About 80% of mortgage borrowers have locked a rate below the current average of 6.35%, said Julia Fonseca, professor of finance associated with the University of Illinois Urbana-Champaign.

Although each drop in mortgage rates helps to loosen the market a little, there is no sign of substantial relief on the horizon, said Fonseca.

“We could still be far from the normalization of these markets,” she said.

Kristin Carlson, a first potential buyer in the Boisse region, has developed the market for four years, while renting in the meantime.

For Kristin, soften mortgage rates in recent weeks, it is “even closer to achieving relaxation”. She said she was impatient to buy soon, to get a possible scenario in which the rates fall much more, causing more competition.

The borrowing costs are to take into account the thought of Ms. Carlson with regard to the type of house which is possible so that it can buy – the district, the size, the quality of the manufacturer.

However, mortgage rates provide a rear seat to other considerations, including seasonality and the search for a house that suits its needs.

Modestly lower mortgage rates offer a certain relief and wear -and -wear activity among buyers, Matt Vernon, chief consumer loans at Bank of America said. But the largest image, the DIP is not enough to repair an under -tensioning market.

“There is a cautious optimism that we are heading in the right direction,” said Vernon.

“I do not think that has necessarily changed the perception of buyers of challenges on the market, but it certainly attracted their attention.”