In a long-awaited move, the Federal Reserve announced that it has cut the federal funds rate by fifty basis points. The new federal funds rate, which acts as a benchmark for borrowing rates across the economy, is now reduced to 4.8%, the lowest rate since March of 2023. This is the first rate cut since March of 2020.

The Federal Reserve had maintained interest rates at a high level since July of 2023, in an effort to control inflation. This rate cut follows an August annual report showing inflation rising at a rate of 2.5%, which is slower than expected.

Experts predict that this will be the first of potentially several acts to lower interest rates over the last months of 2024 and into 2025.

Federal Reserve Chairman Jerome Powell spoke at a press conference following the announcement of the rate cut.

“Our economy is strong overall and has made significant progress toward our goals over the past two years,” Powell said. “This decision reflects our growing confidence that with an appropriate recalibration of our policy stance, strength in the labor market can be maintained in a context of moderate growth and inflation moving sustainably down to 2%.”

The fifty-point magnitude of the rate cut has taken the market by surprise. Mortgage lenders had previously begun factoring in a rate cut of twenty-five points into current mortgage rates, which currently sit at a 6.15% average nationwide.

While the large-than-expected cut to the federal funds rate can certainly affect mortgage rates going forward, it is not the sole determining factor in setting consumer mortgage rates. Notably, financial institutions may be reluctant to enact a sharp drop in mortgage rates, which could set off a boom in consumer homebuying and exacerbating the issue with housing availability.

“We do expect that if mortgage rates remain near these levels, it will support a stronger than typical fall housing market and suggest that next spring could see a real rebound in activity,” says Mike Fratantoni, chief economist at the Mortgage Bankers Association.

Here in the Huntsville/Madison County market, activity has maintained a healthy level. A report from the Huntsville Area Association of Realtors (HAAR), dated to the first week of September, shows lively indicators.

New listings of single family homes increased by 27.1%, while townhouse/condo units saw a 126.3% increase in new listings.

Both single-family units and townhouse units saw increases in pending sales, by 22.2% and 66.7%, respectively.

More inventory continued to come online during the first week of September, with single-family units seeing an increase of 35.7%, and townhouse units seeing a large increase of 157.9%.

The Huntsville Business Journal will continue to report on developments in the real estate market, both nationally and here at home.