Katherine Hare and her husband, Stephen Boyd, are a retired couple looking to relocate. They’ve spent many years in Chapel Hill, North Carolina, where Boyd was raised, but Hare wishes to move closer to her family in West Hartford, Connecticut.

Having built up considerable equity in their home, which is nestled in a thriving local economy, they find themselves in a fortunate position: they likely won’t need to secure a mortgage for their next property. However, the biggest hurdle for Hare will be the challenge of searching for a home from afar.

Hare recognizes that the recent decrease in borrowing costs will assist them when they list their current home. The 30-year fixed-rate mortgage recently fell to 6.09%, the lowest it has been in over 18 months, down significantly from a high of 7.79%.

“Lower mortgage rates will definitely help,” Hare expressed. “It will expand our options in the market. When rates were lower, activity was bustling around here.”

What is holding back the housing market?

While mortgage rates influence the housing market, they are not the sole factor. If you ask any real estate agent why there’s a slowdown in purchases, many will point to a lack of available homes. With about 90% of Americans who have a mortgage enjoying rates below 6%, there’s little incentive for them to move unless absolutely necessary. Consequently, new listings are scarce, and existing homes get snapped up quickly, pushing prices higher.

This scenario reflects the experience that Hare and Boyd are likely to face. Recently, the Federal Reserve cut interest rates by half a point, which is expected to have a corresponding effect on mortgage rates as the central bank continues to implement easing measures.

While prices may rise as demand increases, many experts believe that the overall housing market could benefit from this “unlocking” effect. There is hope for a more stable market following a turbulent period of fluctuations.

“It’s been a rollercoaster,” remarked Rick Sharga, CEO of CJ Patrick Company, a real estate consulting firm. “We experienced a zero-interest rate policy for several years to address the uncertainties of COVID, which boosted demand and made homes more accessible despite rising prices. Currently, affordability is at a historical low, making any reduction in rates incredibly valuable.”

On Thursday, the National Association of Realtors reported a 2.5% decline in the sales of previously owned homes in August. At an annual rate of 3.86 million, sales are comparable to figures seen during the height of the foreclosure crisis a decade ago.

“Home sales were once again disappointing in August, but the recent drop in mortgage rates, combined with the increased inventory, is a potent combination that could create a favorable environment for improved sales in the coming months,” stated the group’s chief economist.

Housing market green shoots?

However, there are signs of potential recovery in the housing market. In August, homebuilders began constructing more homes and applied for additional permits than in prior months, which will help increase the inventory available.

Additionally, the Mortgage Bankers Association reported an increase in mortgage applications for home purchases last week, indicating that many Americans are eager to enter the market.

Selma Hepp, chief economist at CoreLogic, a real estate data company, suggests that while the market may not see a dramatic uptick for the rest of 2024, there remains hope for a better spring selling season with normalcy returning if rates continue to decline steadily in the coming months.

“We should be returning to the patterns seen before the pandemic,” Hepp noted in an interview. “Pent-up demand exists, and lower rates will only enhance that.”