T
he Federal Reserve has finally cut interest rates after years of high mortgage rates, giving the sluggish real estate market a much-needed boost. Although the Fed doesn't directly set mortgage rates, they often move in tandem, and this rate cut is expected to have a significant impact.

    Just 11 months ago, mortgage rates peaked at 7.79% for a 30-year fixed loan, severely limiting homebuyers' purchasing power. However, last week's drop to 6.2%, the lowest since February 2023, has already started to ease the pressure on buyers.

    According to Hannah Jones, Realtor.com senior economic research analyst, mortgage rates are expected to continue falling through the rest of this year and into next year. If that happens, homebuyers will see a significant increase in their buying power.

    For example, if mortgage rates fall to 6%, the typical US buyer would gain an additional $9,000 in purchasing power on average. If rates drop to 5.5%, buyers could see a whopping $34,000 increase in buying power.

    The cities with the highest median list prices will benefit the most from lower mortgage rates. According to Jones, these areas include San Jose, Los Angeles, Oxnard, and other high-priced metros on the West Coast.

    Here's how much more buyers in those pricey areas can spend on a house if rates fall to 6% or 5.5%:

    * San Jose: $30,100 (6%) or $110,100 (5.5%)

    * Los Angeles: $25,600 (6%) or $93,600 (5.5%)

    * Oxnard: $22,600 (6%) or $82,600 (5.5%)

    * San Diego: $21,500 (6%) or $78,600 (5.5%)

    * San Francisco: $20,900 (6%) or $76,300 (5.5%)

    Other high-priced cities like Boston, Bridgeport, Seattle, New York City, and Honolulu will also see significant gains in buying power if mortgage rates continue to fall.