The Federal Reserve on Wednesday lowered its key interest rate by a quarter percentage point, the third consecutive reduction and one that came with a cautionary tone about additional cuts in coming years.
In a move widely anticipated by markets, the Federal Open Market Committee cut its overnight borrowing rate to a target range of 4.25%-4.5%, back to the level where it was in December 2022 when rates were on the move higher.
Though there was little intrigue over the decision itself, the main question had been over what the Fed would signal about its future intentions as inflation holds steadily above target and economic growth is fairly solid, conditions that don’t normally coincide with policy easing.
“We currently have over 900 Realtors in our board of Realtors, and with our inventory right around 346 houses and condos available, that makes the competition pretty stiff,” said Realtor Jane Eurek.
She’s been a real estate agent in Rockford, Illinois — a city about 90 miles northwest of Chicago — for 38 years. Homes there are priced attractively, in the low-to-mid 200s. The problem is finding interested sellers.
“There are people that look at that 3% interest rate and aren’t giving it up unless life issues come up — estate sales, divorces, job relocations,” she said.
According to research from the Federal Housing Finance Agency, the lock-in effect reduced home sales nationally by 1.7 million between 2022 and 2024.
“This reduction in supply increased prices by 7%,” said Jonah Coste, an economist with the FHFA.
That’s part of the reason housing prices stayed high when the Fed was raising rates to fight inflation. And unless rates drop dramatically, which feels unlikely, Coste doesn’t see the lock-in effect dissipating.
“We don’t find any evidence that, simply, time is going to do much to alleviate this,” he said.
This new normal — so many homeowners with dramatically cheaper-than-market-rate mortgages — is basically unprecedented, said Daryl Fairweather, chief economist at Redfin.
And that’s widening the gap between the have-nots and have-homes.
“Well, there’s definitely this unfortunate inequality between people who had a home or bought a home during the pandemic and people who weren’t ready to buy a home quite yet,” she said.
