Fed Rate Cuts Do No Favors for Spring Homebuyers

The Federal Reserve cut interest rates three times last year and pledged not to increase them absent meaningful increases in wages and inflation -- welcome news for the labor market and economic expansion. But in a twist, the shift wasn't welcomed by one group of people: would-be homebuyers. Although lower mortgage rates mean more households can afford a higher purchase price, the upshot of this shift has been fewer houses available for purchase. Because of supply constraints in the housing market, this might mean buyers find themselves out of luck this spring as they fight over a skimpy supply of homes for sale.

It wasn't so long ago, in the second half of 2018, that the housing market faced the opposite problem: Higher mortgage rates put many houses out of reach, leading to a slump in the housing market and a rise in the number of homes for sale. New home sales fell more than 10% year-over-year in the fourth quarter of 2018, and the National Association of Homebuilders Housing Market Index, a measure of homebuilder sentiment, fell to a three-year low. Homebuilder stocks plunged. All of this was happening even as employment continued to rise and the large millennial generation was moving into its prime years of forming households and buying homes.