T
he Federal Reserve's highly anticipated interest rate reductions are expected to occur soon, according to Chair Jerome Powell's recent speech at the Jackson Hole Economic Symposium. Powell signaled that the central bank will begin lowering rates due to inflation falling closer to its 2 percent target and unemployment rising more than anticipated. "The time has come for policy adjustments," Powell stated. "The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, evolving outlook, and balance of risks."

    Pressure to lower rates intensified earlier this month when the latest jobs report showed unemployment at 4.3 percent, which while not historically high, indicated a sharp upward trend since last year, according to Powell. He emphasized that this increase was driven by a substantial workforce expansion and a slowdown in frantic hiring pace rather than layoffs. "Despite this cooling in labor market conditions, we do not welcome further cooling," Powell added.

    The Fed started raising interest rates in 2022 to curb rising inflation. Mortgage rates, although not directly tied to Fed rates, were influenced by similar economic conditions and rose alongside interest rates, slowing down the housing market. Home sales have remained sluggish since then as potential sellers held onto historically low mortgage rates from the pandemic period and persistently high inflation data thwarted the Fed's earlier promises to reduce rates.

    Mortgage rates dropped to a 15-month low after the release of the jobs report in response to an expected rate reduction. Real estate players have been waiting for a drop in mortgage rates to stimulate the housing market, though the first cut is unlikely to provide a quick fix. Some experts believe it will take months for inventory levels to recover, but any movement on the rate front is positive news. "The housing market could recover sooner rather than later," Redfin economist Chen Zhao told The Real Deal earlier this month. "If you're a buyer or a seller waiting for the Fed to act, a lot of that is already priced in."

    The Fed is scheduled to meet on September 18, where it is expected to announce its first in a series of rate reductions over the next year and a half. Mike Fratantoni, Mortgage Bankers Association chief economist, described Powell's remarks as a green light that could trigger a gradual decline in mortgage rates. "Our forecast continues to predict mortgage rates drifting down closer to 6 percent over the next 12 months or so," Fratantoni said.

    "The whole market is on edge," residential real estate enthusiasts eagerly await a long-awaited Fed cut. Homeowners are refinancing in droves as rates fall, but buying activity remains sluggish. The Fed's actions have left real estate deserving of an apology, as homeowners struggle to make ends meet amidst rising costs and economic uncertainty.