How Do Fed Rate Cuts Affect the 2025 Real Estate Market?

By Jason Penrose

Jason has been licensed since 1999, and is currently one of the top 20 agents in Arizona for homes sold.

As we enter 2025, many buyers and sellers are curious about how the Federal Reserve’s recent rate cuts will affect the real estate market. You’ve probably heard that the Fed is reducing interest rates, but what does that really mean for you if you’re thinking of buying or selling a home? Let’s break it down.

How do Fed rate cuts affect mortgage rates? When the Fed cuts rates, many people assume mortgage rates will automatically drop, but that’s not always the case. The last time the Fed lowered rates, mortgage rates actually went up. Mortgage rates are closely tied to the 10-year U.S. Treasury bond rates, not the Fed’s rate directly.

When investors buy Treasury bonds, mortgage rates tend to decrease; when they sell, mortgage rates tend to increase. So, while the Fed’s cuts suggest a possibility of lower rates, mortgage rates follow the movement of Treasury bonds.

Lower mortgage rates could open opportunities for more buyers. If mortgage rates fall to around 6%, we could see 5.5 million more households qualifying for mortgages. Additionally, 1.6 million renters could suddenly become buyers. This is great news for people who thought homeownership was out of reach, but it also means more competition in the market, especially in popular areas. If you’re looking to buy, it’s essential to get pre-approved and be ready to move quickly when you find the right property.

More homes could hit the market as sellers respond to lower rates. As rates drop, many homeowners who were “stuck” in their homes due to higher rates might decide it’s time to sell. This could increase the number of homes for sale. However, if too many sellers list their homes at once, it could overwhelm the market. The good news is that, with more buyers entering the market, the balance should remain relatively strong, helping both buyers and sellers.

What does this mean for buyers and sellers? 2025 brings great opportunities, but staying informed and acting strategically is key. For buyers, lower mortgage rates can boost your buying power, but with more competition, be ready to move fast. For sellers, the increasing number of buyers entering the market makes it a great time to sell and explore other properties. Just make sure to price your home strategically and stand out from the competition.

With mortgage rates likely to dip and more buyers entering the market, now could be the perfect time to make your move, whether you’re buying or selling. It’s important to stay informed and work with an experienced agent who can guide you through these changes and help you make the best decision. If you have questions about how these changes could affect your buying or selling plans, or if you’re ready to make a move, give us a call at (602) 738-9943. We’re here to help you make confident and informed decisions in today’s market.