Due to easing concerns about inflation and economic growth, the Federal Reserve lowered interest rates in September by 50 basis points, putting rates at between 4.75 and 5%. It was the first rate cut since March 2020. While previously hesitant to make cuts, the Fed acknowledged that high borrowing costs have made home purchases and loans more expensive, resulting in many homes remaining unsold due to limited financing options.
A reduction in rates could lead to lower mortgage benchmarks, potentially stimulating the economy. However, the Fed must exercise caution; too large a decrease could reignite inflation. Currently, the belief is that the economy is robust enough to handle this adjustment.
Leslie Molson, a New Orleans-based principal accountant and bookkeeper, warns potential homebuyers not to get too excited by the news.
“Since the Federal Reserve doesn’t set mortgage rates, only short-term loans like credit card interest, home equity loans and lines of credit, it hasn’t and won’t have a significant impact on the housing affordability and availability crisis in Louisiana,” she said. “Mortgage rates came down right before the cuts but have since gone up a little bit. Overall, housing affordability is on par with what we saw during the housing bubble that preceded the 2007-2009 financial crisis, and it’s not good.”
Still, Benji Azar, a real estate specialist at Elifin Realty, is hopeful that the recent cut will be the first of more positive announcements.
“The cut is similar to an invitation to a party,” he said. “It’s been noticed and is creating interest and conversation in the market, but investors haven’t decided to jump in fully. There are talks of an additional cut in November, and we have the upcoming election. Many investors are waiting to see what happens for the remainder of Q4 2024, but the RSVP list looks to be growing for Q1 2025.”
But what does this mean for Louisiana?
While some are quick to point out that the rate cut is only half a point, Philip Ewbank of Keller Williams said that Louisiana residents will be affected by the cut in a positive way in the short term and a neutral way in the long term.
“Unlocking buying power by lowering rates creates economic opportunity,” he explained. “More importantly, the Fed’s promise for more cuts continues to fuel these opportunities. In the short term, it’s cheaper to borrow money. This makes credit card balances a bit less expensive (as we’ve seen a big rise in debt). Mortgage rates are dropping. We are in a buyer’s market due to insurance and high interest rates.”
Ewbank said lowering mortgage rates is the first step to making homes more affordable. In the long term, he believes more affordable homes lead to an overall improvement in the economy.
“[The interest rate drop] can heat the economy back up, which is good, but we don’t want it too hot, right?” he said. “Half an entire percentage point is a big deal as companies can begin borrowing money. It’s cheaper to make investments in capital at lower interest. This affects Louisiana as companies can expand, hire more people and begin more projects.”
Veronika Lee Claghorn is the associate news editor of BizNewOrleans.com. She may be reached via email at Veronika@BizNewOrleans.com.
