The U.S. Federal Reserve announced Tuesday an emergency interest rate cut, lowering the target range for federal funds by 50 basis points to a range of 1-1.25 percent. The move comes amid global market uncertainty surrounding the spread of coronavirus, a deadly respiratory virus that has quickly become a public health crisis.
“The fundamentals of the U.S. economy remain strong,” the U.S. Federal Reserve’s open market committee said in a statement. “However, the coronavirus poses evolving risks to economic activity.”
“The Committee is closely monitoring developments and their implications for the economic outlook and will use its tools and act as appropriate to support the economy,” the statement continues.
The rate cut is the biggest since 2008, prior to the recession. In the statement, the Fed said its stated goal is to achieve maximum employment and price stability goals, so the rate cut could provide the U.S. markets a shot in the arm amid recent struggles. It’s the fourth rate cut since the start of 2019.
The Dow Jones began the morning falling but rose sharply after the rate cut was announced. Real estate stocks were mostly level at 10:45 a.m., with Realogy up about 4 percent, Zillow down about 2 percent, RE/MAX up slightly less than 1 percent and eXp Realty up slightly less than 1 percent.
Danielle Hale, realtor.com’s chief economist, believes the move means we could see a new record low for mortgage rates.
“The surprise rate cut, the largest since December 2008, is a strong move by the Fed to shore up economic activity even though most economic data has not yet shown major slowing,” Hale said. “With last week’s mortgage rates hovering just 14 basis points above all-time lows even before the large Fed rate cut, a new low in mortgage rates seems almost inevitable.”
Historically low mortgage rates will likely drive mortgage refinance activity and could increase homebuyer activity — altough there could be fears about home shopping to avoid contact with others, which could dampen sales.
“Additionally, mortgage rates and affordability are not the biggest challenge in today’s housing market,” Hale added. “A lack of options continues to be the largest hurdle. If sick-days impede construction work or builder-supply chains, slowing down the supply of new homes, this could dampen home sales, too.”
Jason Abrams the vice president of the industry at Keller Williams told Inman that the company is closely monitoring the impact the cut will have on the market.
“We currently have historically low-interest rates and low inventory in many markets,” Abrams said. “And, it’s all part of the perfect equation for consumers to work with real estate agents on how to navigate the market in changing times and get the best deal.”
“This moment is an opportunity for agents to provide value and when the top agents will shine for their clients.”