Real estate agents have white-knuckled their way through more than two years of suffocatingly high mortgage rates that have stymied sales, choked off inventory and pushed home prices to new all-time highs.

So what was the reaction from agents when the Federal Reserve surprised everyone by cutting rates by 50 basis points rather than the 25 that was taken as a given?

Meh.

In conversations with HousingWire, agents from across the country said they don’t think the larger-than-expected rate cut will have much more of an impact on the housing market than if they’d gotten the one they did expect.

They believe lower mortgage rates have already been priced into the market and that movement from buyers will be relegated to people on the margins who need to move, rather than want to.

And while sales will likely rise, there’s a scenario where an influx of buyers will drive prices up and offset the financial benefit of lower mortgage rates.

“I always think demand comes before supply in this situation,” said Redfin agent Justin Vold, who is based in Los Angeles. “If more buyers come in than supply comes in, that has to dictate stronger prices or more sales, one of the two.”

Home sales could use some juice. The National Association of Realtors reported this week that existing-home sales in August fell by 2.5% month over month and by 4.2% compared to a year ago. While new-home sales are faring much better, they make up significantly less of the market.

Rising interest rates were a response to post-pandemic inflation that began to rise sharply at the beginning of 2022. But inflation numbers have been dropping steadily for some time, and they appear to have bottomed out. 

The Consumer Price Index (CPI) for August showed a mere 2.5% year-over-year rise, the lowest figure since February 2021. Core inflation — which excludes food and energy costs — sank to 3.2%, a key indicator for the Fed.

But the one component of the CPI that remains stubbornly high is housing costs, which makes up a third of the index. This has given rise to the perception in the real estate industry that the Fed bungled the timing of rate hikes and cuts. 

“By March 2022 everyone including my cat knew that inflation was soaring and the money supply was zero,” said New York-based Compass agent Leonard Steinberg. “To a certain degree I think the Fed has been slow to respond, but we’re going to head back to normal. That’ll be good for the housing market, but we still have a lot of work to do on [housing] supply.”

More important than the size of the interest rate cut is where mortgage rates land when the cut settles in. Agents consistently said that the magic number for rates that would really get the market moving would be 5% or below.

Geographically, the effect will play out differently depending on conditions in any given market. In Florida, Texas and Boise, Idaho — pandemic boomtowns that have since cooled considerably — lower mortgage rates could stabilize the market.

Linda O’Koniewski, an agent in the Massachusetts area, says that the lower rates could make things worse in hot sellers markets.

“In greater Boston, it’s just going to add more fuel to the fire here,” she said. “So this doesn’t really fix the affordability problem. It’s great for investors. It’s great for M&A. It’s great for a lot of people, but for the guy on the ground? It might mean he can get into a house. It depends on what part of the country.”

Christian Prakas, a Serhant agent in Palm Beach County, Florida, points out that lower rates can also impact the luxury market, which tends to be considered immune to mortgage rates.

“People have a large misconception that these interest rates don’t affect the high-end market, meaning $10 million and up,” he said. “It does affect them. When interest rates were 2.5% to 3.5% they would take a $30 million loan because they can make more on their money in their own business or in the bond market or stocks. It has locked those guys into those big houses that they don’t really want anymore.”