Could a rate cut launch the housing market?

Mortgage interest rates (for the standard 30-year fixed rate) have fallen about a half percent over the past six months, from 4.7% in November 2018 to 4.2% in April 2018. This is during a period of no cuts in the Federal Reserve prime rate, and only a mere “outlook” of no rate Increases for the year by the Fed. The Fed did announce an end to the “Quantitative Tightening” policy of reducing the amount of bonds retained on its balance sheet (which was as high as $4.2 trillion, and is now down to about $3.7 trillion).

If interest rates are a significant factor in real estate prices and sales, then a rate cut should significantly increase sales and prices. As evidenced by a “surprising” surge in real estate sales at the beginning of 2019, a reduction to interest rates will drive housing. Is a reduction in rates coming? The answer to that question is a definite maybe.

President Trump has publicly called for a reduction in interest rates by the Fed, and said that it would turn the US economy into a “rocket ship.” That doesn’t mean that the Fed will comply, but when the President complained about interest rate increases were affecting the stock market late last year, suddenly the Fed decided to “pause” any additional rate increases.

Would a rate cut boost real estate sales? As I stated in prior blogs, I believe that a recession is coming, which will force the Fed to cut interest rates, and when that happens the housing market will boom. Not only that, but when the stock market tanks because of the recession, that will also drive investors from the stock market to real estate and further drive prices.