The Federal Reserve’s decision to lower its benchmark overnight lending rate by a quarter percentage point was broadly welcomed by experts. But the question still to be determined is whether the lower interest rate will finally tempt households paralyzed by the former higher rate to make the leap to homeownership.
Rates fell initially when the Fed made its announcement but soon rebounded when it seemed that further cuts this year were unlikely. “Rates will remain mostly steady after the Fed executed the already priced in 25 bps cut and painted a muddy picture in their projection for future rate cuts,” commented Chen Zhao, Redfin’s head of economic research. “What happens to rates immediately after the meeting this year will depend on the Fed’s projections for future cuts and, in the longer term, how economic data comes in.”
Thus, would-be homebuyers also face another calculation: whether to hold out in the hope that rates will drop still further. In doing so, they may face the risk that still lower rates will bring more competition from other buyers and drive prices up once more. “The problem with that strategy,” said one Redfin agent, “is that if rates do fall again, more buyers will come off the sidelines, prices will rise, and sellers will regain their leverage. That means even with lower mortgage rates, buyers could end up with a higher monthly payment.”
And the rate cut does not solve other problems for homebuyers. The median U.S. home sale price rose 2.2% year over year to $392,225 for the month ended September 14, according to a new report from Redfin. And even though the weekly average mortgage rate slipped to 6.35% before the latest Fed rate cut, the median monthly housing payment still rose slightly to $2,590. The higher payment was caused by rising house prices—with the median asking price rising 2.9% year over year to $402,475 --even though sales are slow and fewer listings are coming to market.
“Pending home sales are up just 0.8% from a year earlier, the smallest increase in two months. New listings are up just 1.1%, marking the third straight month they have increased or decreased by about 1% or less, and total listings are up 9.9%, the smallest increase since March 2024,” Redfin reported. Homes are remaining on the market longer and sellers are making concessions.
Redfin cited a number of leading indicators to assess the state of the market. The daily average 30-year fixed mortgage rate stood at 6.22% on September 17, essentially flat year over year. The Redfin Homebuyer Demand Index slumped 7% over the month and 13% year over year. However, Google searches for homes for sale climbed 11% over the month and 30% over the year. Touring activity also rose sharply in September by 21% compared to just 8% in 2024.
Pending sales eked out a 0.8% gain to 79,437 – the smallest in two months. Fewer homes were off the market in two weeks and those that sold remained on the market 45 days, six days longer than before. Other significant markers also turned negative. Just 24.4% of homes sold above list price, compared to 28% the year before and the average sale to list ratio fell to 98.5%, down from 99%.
The biggest increases in median sale prices occurred in Detroit (10.8%), Pittsburgh (9.4%), Cleveland (7.9%), San Jose (6%) and Milwaukee (6%). The biggest losses were in San Francisco, Sacramento, Portland, and Tampa.
Meanwhile, the Fed’s path forward seems unclear even to its members, who expressed a variety of views on whether there should be more rate cuts. “The dispersion in the outlook should be interpreted as uncertainty over future cuts rather than optimism that the Fed is a pre-set course to cut twice more this year,” Zhao commented.
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