The Housing Market Will Tell the Fed How Much to Cut Rates
A lot of pent-up economic energy will be unleashed once mortgage rates fall to levels that boost transactions and home-linked consumption.
A soft landing.
Photographer: Michael Buckner/Getty Images
It’s been clear since the fall of 2022 that the housing market needed lower interest rates to fix many of its problems including a lack of affordability for buyers, the mortgage rate lock-in dynamic for homeowners, and reduced activity for companies ranging from Home Depot Inc. and Lowe’s Cos. to suppliers of building materials.
But the Federal Reserve was more focused on containing inflation than helping the housing market. No more. Economic data over the past few months have shifted policymakers’ priorities, with investors expecting the first of several interest rate cuts in September. The Fed now needs to support the labor market, and that means treating housing as an industry to boost rather than suppress, and using its health to gauge whether monetary policy has been eased enough to hold the economy in balance.