Federal Reserve's rate cut could impact Atlanta home prices
Americans juggling high prices and a slowing job market could soon see some relief after the Federal Reserve lowered its key interest rate, but one Atlanta mortgage expert says a drop in rates could mean bad news for locals looking for a new home.
The Federal Reserve lowered its key interest rate on Wednesday for the first time since December, aiming to give the economy a lift as inflation remains high.
What the rate cut means
The Fed lowered its short-term rate by a quarter point, from 4.3% to about 4.1%. The central bank also projected two more cuts before the end of the year.
The federal funds rate is the rate at which banks borrow and lend to one another. While consumers don't pay that rate directly, Fed policy affects borrowing costs for credit cards, auto loans, mortgages, and more.
The central bank operates under what's called a "dual mandate": keeping inflation under control while encouraging full employment. Typically, it raises rates to cool rising prices and cuts rates to stimulate growth and hiring.
The challenge now is that inflation remains above the Fed's 2% target, while the job market has begun to weaken, leaving policymakers in a difficult spot.
How the rate cut could affect Atlanta home sales
Matthew Johnson, a senior loan officer with Atlanta's Anchor Home Mortgage, said that the Fed's action could lead to rising costs in the metro's housing market.
"It's more competition, and when there's more competition, guess what? It drives prices of homes up rather than downward," Johnson said.
He said that many people in the metro Atlanta area who were approved for low-interest mortgages during the COVID-19 pandemic could be waiting for rates to drop before they think about moving.
"They don't want to go and switch their 3% mortgage for a 6 or 7% mortgage. However, you put them in a 5%, now you can make that case, right? So somebody who's in a 3% mortgage—it might make sense for them to go ahead and sell their house, which will bring more inventory and more qualified buyers to the market," Johnson said.
That means that the price of moving into a new home may stay the same or cost more in the market.
"Think of mortgage rates similar to how the stock market operates. The stock market isn't based on fact. It's based on emotion. People invest in stocks, and that's not what drives the stock price up. It's all about it's all about sentiment," Johnson said.
Announcing the rate chance, Fed Chair Jerome Powell said "risks have moved toward neutral," but he warned that the central bank had "no risk-free paths now."
For now, home prices are staying steady. The impact of the cut will be felt in Atlanta and across the country gradually.