Prospects for homebuyers could improve this year as the Federal Reserve moves to lower its interest rate target, a bright spot in an otherwise mixed economic outlook.
Greater housing affordability would fulfill one of President Donald Trump’s long-expressed desires. His goal of making it easier to buy houses is the stated reason that he has badgered Fed Chairman Jerome Powell over the course of months to lower interest rates.
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Soon, that request will likely be met, at least partially. Investors expect that the central bank will cut its rate target at its meeting next week and then lower rates as much as 0.75 percentage points by the end of the year. While the cuts are not likely to be as steep or as fast as Trump has called for, they are likely to help some people who have been priced out of housing in recent years.
In July, Trump criticized Powell for keeping interest rates high, making it “difficult for people, especially the young, to buy a house.”
Although the Fed has not yet cut rates this year, mortgage rates have let up in recent weeks in anticipation of monetary easing. The average rate on a 30-year fixed-rate mortgage fell to 6.35% in the most recent week, according to Freddie Mac, down from around 7% when Trump took office.
“When rates start to get closer to 6%, the data starts to pick up, the supply-demand equilibrium changes,” HousingWire analyst Logan Mohtashami said in a podcast on housing market data.
Mortgage rates near 7% had been one of the major factors that pushed homebuying out of reach for the typical family in recent years. The other has been elevated home prices.
Together, those factors raised the cost of homebuying to the highest in a generation, leading to a steep drop in home sales.
But house prices dropped slightly after the Fed began raising rates in 2022. They rose again in recent years but appear to have leveled off nationally in recent months.
Prices are already down significantly in parts of the country, especially in the South and West. According to Realtor.com, the median Austin house price fell 5% over the past year, and it is down nearly 6% in Miami.
Mike Fratantoni, chief economist and senior vice president of research and business development at the Mortgage Bankers Association, told the Washington Examiner the constrained supply had kept prices up. He said that even with high mortgage rates, buyers were getting outbid and frustrated with the lack of opportunities to buy a home.
“That’s changed,” Fratantoni said. “Builders really picked up the pace of construction over the past couple of years, and through the course of 2025, we’re seeing that inventory build up.”
Analysts generally see the inventory of houses for sale as a key indicator of prices.
There were enough existing homes for sale in July for 4.6 months of sales, according to the National Association of Realtors, up 15% from a year earlier.
Fratantoni said his group expects home price growth to fall in the coming year. Last year, prices rose about 4.5% at the national level.
“Our forecast is that full-year this year is going to be more like 1%, and really flat home prices the next couple of years,” he added.
Still, the prospects for the housing market this year are unclear. It’s not guaranteed that rate cuts from the Fed will lower rates on mortgages. In fact, when the central bank cut rates last year, mortgage rates did not fall accordingly, likely because of expectations for relatively strong economic growth buoying rates generally.
“So the big question is, ‘Will rates keep falling?’” asked Nadia Evangelou, the senior economist and director of real estate research for the National Association of Realtors. “I think this time is different than a year ago, and the main reason for that is about the jobs.”
“A year ago, the economy was still running hot, jobs were strong, and the labor market was carrying demand,” she said. “So job growth has slowed, unemployment is inching up, and that labor market cooling is giving the Fed more room to ease without markets immediately fearing a rebound in inflation.”
Unemployment rose to 4.3% in August, up nearly a percentage point since the post-pandemic lows. This past week, the highest number of claims for unemployment benefits in four years occurred.
The threat of a slowing economy could mean fewer people can buy homes, even as prices come down.
“Lower rates definitely help, and prices not running away from buyers definitely helps,” Fratantoni said. “But on the other side, you have buyers being a little more cautious if they’re uncertain about their job situation.”
Still, the overall economic picture is not bad for most homebuyers.
“The people who still have jobs and feel good about their employment situation are going to want to take advantage of low rates,” said Daryl Fairweather, chief economist at Redfin. “A lot of people have been waiting and waiting for low rates. So I think if rates drop, there will be a rush of people to go buy homes.”
On the supply side of the equation, key parts of Trump’s agenda are raising costs for homebuilders. His immigration crackdown is raising labor costs for contractors, Fairweather said, while tariffs are driving up the cost of materials.
“I think it’s gonna be tough for the construction industry to have a swift boom, but at the same time, there’s a lot of new homes that are for sale right now, and I think there will be more appetite to buy those homes that are already completed,” she said.