Gearing Up For the Fed’s Interest Slash
As the building industry heads into the fall season, housing professionals across the nation are gearing up for big changes on the horizon.
One of those changes includes the recent rate cut from the Federal Reserve. For the first time since March 2020 amid the pandemic, the Fed’s Federal Open Market Committee announced the decision to lower the target range for the federal funds rate by 0.50 percentage points to 4.75% to 5% in light of the progress on inflation and the balance of risks, the committee decided.
“Recent indicators suggest that economic activity has continued to expand at a solid pace. Job gains have slowed, and the unemployment rate has moved up but remains low,” read a release from the Fed. “Inflation has made further progress toward the Committee’s 2% objective but remains somewhat elevated.”
Per projections from National Association of Home Builders (NAHB) Chief Economist Robert Dietz, this action is the beginning of a series of federal funds rate slashes, which ultimately should drop the top target rate to about 3% in the coming quarters.
So how will these rate cuts affect homebuilders and the overall state of the housing market?
Brad Hunter, who leads national consultancy Hunter Housing Economics, says that our industry is highly sensitive to interest rates. “(Interest rates) affect both the cost of credit for builders and the affordability of homes for consumers,” Hunter said in his column on page 22. Events such as a rate cut often take time to see the impact to its full potential. However, an immediate effect will be seen on builder and land developer loans, per Dietz.
“Interest rates for such loans should move lower by approximately 25 to 50 basis points in the coming weeks,” Dietz said. “A reduction for the cost of builder and developer loans is a bullish sign for housing affordability.” In a recent podcast, NAHB Chief Executive Officer Jim Tobin and Chief Operating Officer Paul Lopez discussed the rate cut further and its residual effects on the housing scene.
Brian Alvarado is the senior editor at large for Builder And Developer Magazine.
