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the average rate on a 30-year standard fixed mortgage in the united states has fallen to 6.35%, the lowest since may 2023, according to the latest data from mortgage finance giant freddie mac.

over the past year or so, high mortgage rates have created a "lock-in effect" in the u.s. real estate market - sellers who hold properties at low mortgage rates lack the motivation to enter the market to replace their homes, and buyers are unwilling to pay higher monthly payments, so they enter a wait-and-see mode. the level of interest rates affects the nerves of both buyers and sellers, and the u.s. real estate market is "eagerly looking forward to" a rate cut.

recently, several fed policymakers have hinted that the fed is preparing to start a rate cut cycle. since july 2023, the fed's benchmark lending rate has remained in the range of 5.25% to 5.50%. the market expects that the fed will most likely cut interest rates by 25 basis points at the interest rate meeting on september 17-18.

nancy vanden houten, chief u.s. economist at oxford economics, predicted to china business news that lower interest rates will provide some support for home sales. "in fact, we don't have to wait until the actual rate cuts begin. the mere expectation of rate cuts has driven down interest rates, including mortgage rates. since the beginning of july, 30-year mortgage rates have fallen by 60 basis points." she said, "we expect interest rates to fall further as the fed fully initiates rate cuts. our forecast is for the first 25 basis point rate cut in september, followed by another 25 basis point cut every other meeting."

changes in 30-year mortgage rates in the united states over the past three years (source: freddie mac)

can it heat up the us housing market?

houten believes lower interest rates will attract buyers and some sellers back into the housing market. "to be honest, though, i'm a little surprised that the decline in mortgage rates we've seen so far hasn't resulted in more buyers entering the market, especially as reflected in the recent decline in pending home sales data," houten said.

according to the national association of realtors (nar), pending home sales fell 5.5% in july, and the pending home sales index fell to a record low, while the market generally expected a small increase. at the same time, the supply of homes for sale is increasing, reaching the highest level since october 2020 in july.

houten analyzed that there may be several reasons behind this. first, potential buyers are more cautious because the labor market is not as strong as before. second, despite the decline in interest rates, housing prices are still high and many families, especially first-time homebuyers, still can't afford it. in addition, the new rules on real estate broker commissions that took effect in the united states in august may also have an impact. since the new rules will reduce the commission costs of buyers and sellers, some transactions may be postponed from july to august.

chen hongming, deputy general manager of evergreen properties in washington, d.c., also observed that in virginia, maryland and washington, d.c., where the company’s business covers, “the transaction date of houses for sale has indeed been extended. previously, as soon as a house was listed, there would be a lot of offers. now, the situation has changed a little and cooled down a little.” however, he believes that the potential interest rate cut by the federal reserve in mid-september will have a warming and positive effect on the real estate market, “regardless of the extent of the cut, it will affect mortgage rates.”

regarding the impact of the rate cut, kashif ansari, co-founder and ceo of juwai iqi group, a global real estate technology company headquartered in kuala lumpur, told yicai global that if the federal reserve cuts interest rates by 25-50 basis points in september, it can be expected that the 30-year mortgage rate will fall accordingly. historically, such interest rate cuts have led to lower mortgage rates, but the specific impact may vary. "in the next 3 to 6 months, we may see 30-year mortgage rates fall to 6% or lower." he predicted.

amy wang, a broker at serhant, a new york-based real estate agency, told china business news: "lower interest rates will stimulate many people to buy homes, especially properties below $1 million. (new york) is already a hot market, so lower interest rates are very helpful, and non-luxury properties will be particularly affected. as for the luxury real estate market, the impact is not that great, because most high-net-worth individuals are all-cash buyers."

can it boost the confidence of builders?

ansari believes that while lower mortgage rates will reduce borrowing costs and stimulate demand, the impact on the supply side is more complicated. "due to the lock-in effect of existing low-interest mortgages, many homeowners may still be reluctant to sell their properties. so while demand may increase, there may not be much change in supply immediately. even if some homeowners finally decide to list their houses, it is usually for replacement, which will not have much impact on the market supply." he said, "as a result, house prices will continue to rise in the next two years, but the rate will slow down."

"at present, our expectation in the market is that housing prices will continue to rise. although the increase in housing prices has slowed down as winter approaches, we feel that housing prices will continue to rise due to the small number of houses. if interest rates are cut, it will encourage buyers to buy houses more enthusiastically." amy wang gave an example, "our customers who have just signed contracts are very happy because they caught up with the interest rate cut when applying for loans. people who can lock in low interest rates are very happy, which greatly increases their purchasing power."

houten agrees that increased inventory and lower mortgage rates will support home sales growth for the remainder of 2024. "we expect lower interest rates to support increased home sales as we approach the end of the year. in addition, the increase in housing supply may put some downward pressure on home prices, which will also promote sales growth."

but she added: "the latest data on mortgage applications suggest some downside risks to our outlook. mortgage rates fell below 6.5% in august, but mortgage purchase applications were still down more than 2% that month, suggesting that lower rates and increased supply are still not enough to boost home sales."

over the long term, ansari said other factors that have contributed to high housing prices have not changed, including limited housing inventory, strict planning restrictions on building, a preference for single-family homes and population growth.

despite the shortage of supply, the enthusiasm of us construction developers is still not high. according to the us construction spending data in july cited by the oxford economics research institute, us single-family home construction fell 1.9% month-on-month in july, the largest monthly decline since the end of 2022. the oxford economics research institute predicts that real residential investment will decline at an annualized rate of 4.8% in the third quarter.

"this is due to high construction costs, regulatory barriers, market uncertainty and financing challenges. these factors have combined to create a less favorable environment for new residential projects, making builders more cautious about starting new homes," said ansari. "u.s. builders have not yet fully recovered from the shadow of the 2008 financial crisis when house prices plummeted. we believe that the confidence of builders will improve slightly after the interest rate cut."