Community Impact spoke to Houston-area real estate and economic experts who explained how the federal funds rate cut will affect businesses and consumers in the Houston area.
The background
The cut was larger than the National Association of Home Builders projected in its August economic outlook forecast, and it projected one more 50 basis point rate cut in December to bring the rate down to 4.5% in its September forecast.
“Recent indicators suggest that economic activity has continued to expand at a solid pace,” reads a Sept. 18 statement from the Federal Reserve. “In light of the progress on inflation and the balance of risks, the Committee decided to lower the target range for the federal funds rate by 1/2 percentage point.”
The details
The rate cut might be the best news for interest rate-sensitive industries like real estate, said Patrick Jankowski, senior vice president of research at the Greater Houston Partnership.
The lower rates could produce more construction and business expansion as builders and developers can finance projects for less, Jankowski said. It could also stimulate consumer spending by making loan payments more affordable.
Real estate, automobiles and anything else purchased with consumer loans will also see an impact, Jankowski said.
“In theory, when they lower interest rates, it should make it easier to purchase a car, easier to purchase a home, easier to take out a home improvement loan,” Jankowski said. “That's the consumer side. On the business side, it makes it easier to expand your business, whether you need to build a new warehouse, upgrade equipment, or open a new location.”
However, Jankowski said the effects of the Federal Market Open Committee decision might not be felt for three to six months.
“The [Federal Reserve] lowering interest rates, it sends a signal about the economy, but it doesn't affect it immediately,” he said.
Diving in deeper
Greater Houston Builders Association President Matthew Reibenstein said the rate cuts bring down not only mortgage rates but the costs associated with financing developments and home construction sites.
Reibenstein also said it could move people who are on the fence about entering the home construction market or home buying [process] into action.
The outlook for future new home sales has “improved slightly” because of this, Reibenstein said, but interest rates are still high compared to recent years, even with the first rate cut since March 2020.
“You want to purchase, but then you want to be interest rate sensitive,” Mouton said. “They never were incentivized with the higher rates to go on and actually start looking or to upgrade their next home.”
What’s next
In its Sept. 18 statement, the Federal Reserve said it will continue monitoring incoming data and the evolving outlook to consider additional adjustments to the rate.
“I don't want to say light at the end of the tunnel, but it's certainly a lot better than when it goes up,” Reibenstein said.
