Market Insights

What Falling Interest Rates Actually Mean for the Housing Market

September 23, 2024• 8 min read

After rising consistently since late 2022, the Federal Reserve began cutting interest rates for the first time last month. Most analysts are treating this as the beginning of a real estate market crash. But how accurate is that characterization? What do lower rates actually do to the housing market — and what changes depending on who wins the presidential election? This post addresses all three questions.

How We Got Here

Following the COVID period, the U.S. economy experienced changes without modern precedent. The government printed money at a historic scale and distributed it broadly. Interest rates were pushed to nearly zero. COVID restrictions simultaneously prevented many homeowners from listing their properties — reducing supply just as demand was climbing. The result was home price appreciation that continued without interruption until November 2022, when the Fed began raising rates.

When the rate increases began, some observers predicted an imminent crash and advised against buying. Many buyers waited, expecting significant price drops.

The opposite happened. Prices have risen 43% above pre-COVID levels. Those who waited are now looking at higher prices and higher rates simultaneously.

The Market Right Now

Despite prices that have never been higher, sales volume has declined — from roughly 5–6 million homes per year under normal conditions to approximately 4 million in 2023 and 2024. That's a meaningful reduction, but for a country of 333 million people with roughly 162 million employed workers, 4 million home sales doesn't signal economic collapse.

Part of the slowdown comes from mortgage rates that touched 8%. But many buyers are still purchasing — either paying cash or accepting higher rates for 1–2 years with plans to refinance when conditions improve. Interest rates can change. The equity you don't build while waiting cannot be recovered.

One of the most significant factors suppressing sales is seller hesitation, not buyer hesitation. The number of homes coming to market weekly — currently 77,000–80,000 — is historically very low. During the 2008–2011 crisis, that figure was 250,000–400,000. The difference reflects the current generation of homeowners: 40% have no mortgage at all, and 70% have loan balances substantially below their home's value. This is not a population under financial stress.

Active for-sale inventory has risen — there are now approximately 500,000–600,000 more listings than at the start of the year, bringing the total to roughly 1.8 million. That sounds like a lot until you consider that there are approximately 4 million active buyers in the market. That's roughly three buyers for every available home. Under normal market conditions, active inventory sits around 2.5 million. During the 2008–2011 crisis, it exceeded 4 million. We are far from those conditions.

Homes are staying on the market slightly longer — an average of 34 days compared to 24 days earlier in the year. But under normal conditions, average time on market is closer to three months. Even with the improvement, we're still well below historical norms.

Why Prices Are Softening Right Now

Despite fundamentally strong indicators, prices in some markets have moderated. Several factors are converging.

Presidential election uncertainty is making both buyers and sellers hesitant. Some buyers are waiting to see which direction policy takes before committing. Some sellers think the winter slowdown creates a better opportunity to negotiate now rather than waiting until spring. Separately, the expectation that the Fed will continue cutting rates has some buyers holding out for lower mortgage rates before purchasing.

The election-driven slowdown, combined with the seasonal shift into winter, created real opportunity for prepared buyers in late 2023 and early 2024. During that window, significant negotiating leverage was available — buyers working with informed representation were able to secure meaningful price reductions.

What Rate Cuts Actually Do to Mortgages

The relationship between Federal Reserve rate cuts and mortgage rates is not as direct as most people assume.

Mortgage rates are primarily influenced by 10-year Treasury yields, bond markets, and unemployment data — not directly by the Fed's short-term rate. In fact, mortgage rates had already dropped from 8% to approximately 6% before the Fed made its first cut. Then, after the Fed announced the cut, mortgage rates actually rose slightly.

Over the long term, Fed rate cuts do reduce borrowing costs throughout the economy, increasing purchasing power and drawing more buyers into the market. More buyers means more competition, which can push prices higher. At the same time, lower rates should encourage locked-in sellers — those holding sub-3% COVID-era mortgages — to finally list their homes, since the penalty for trading up decreases as rates fall. This would add supply at a critical time.

The Election's Impact: Harris vs. Trump

With the election approaching, both candidates have made housing-related proposals. Neither set of proposals can be implemented without Congressional approval, and both contain significant uncertainty.

If Harris is elected: She has proposed building 3 million new homes over four years through tax incentives, offering $25,000 in assistance for first-time buyers, implementing rent control to limit how much landlords can raise rents, and increasing corporate taxes.

The 3 million homes goal is ambitious and faces significant practical obstacles — unclear incentive structures, record-low new home sales volume, and unresolved questions about geographic distribution. Building 3 million homes also requires builders to be willing to build, which depends on conditions that tax incentives alone may not create.

The first-time buyer assistance is meaningful in principle, but many details — how it interacts with existing state and federal programs, which buyers qualify — remain unclear.

Rent control has a documented history of producing short-term benefits for existing tenants while reducing long-term investment and maintenance in affected housing stock. Markets with long-standing rent control often see paradoxes: people with high incomes holding onto $300–$400/month apartments they refuse to leave, while the surrounding stock deteriorates from underinvestment. The long-term effect on housing supply is generally negative.

Higher corporate taxes increase developer costs, which typically flow through to home prices.

If Trump is elected: He has proposed opening federal land to development, reducing bureaucratic regulations on construction (which currently account for 25% of single-family and up to 43% of multifamily construction costs), creating and expanding opportunity zones that provide tax advantages to investors in underdeveloped areas, and reducing corporate taxes to stimulate investment.

Trump has also proposed cracking down on institutional buyers who have purchased large numbers of homes, which he argues artificially constrains supply and raises prices for individual buyers. The argument has merit, though investors — institutional and otherwise — also bear risk and costs that the market depends on.

Regarding immigration, Trump's deportation proposals could significantly disrupt the construction industry, where undocumented workers represent approximately 20% of the labor force. Labor shortages in construction are already severe. Reducing that workforce further would slow new construction and increase costs.

On both sides, the proposals are directionally different in meaningful ways — but neither set has been fully developed, and neither can be enacted unilaterally.

The Bottom Line

Regardless of who wins the election, home prices have risen in every presidential administration since 2001. The reason is structural: every president either increases the money supply through stimulus or reduces taxes, which moves capital back into circulation. More money in circulation means higher asset prices. Presidential elections matter for policy but have minimal long-term impact on housing values.

Focus on your own readiness. When you can afford to buy — financially prepared, with the right property and the right terms — buy. The economy will continue doing what it does. The people who benefit from real estate are those who are in it, not those who are waiting on the sidelines for the perfect moment.