Lowering Mortgage Rates Could Have Varying Effects across the Country

While many localized housing markets are falling in average price, many markets remain stubbornly high, with homes trading significantly above their long-term pricing trend. That is, trading higher than they otherwise would given the local history of prices.

The reasoning for this appears to be some markets are more supply constrained relative to demand than others. Supply shortages in some areas appear to be primarily driven by the “lock-in” effect created by COVID-era loans and slower construction of newer units in some parts of the country.

Despite elevated mortgage rates, competition for housing remains high in cities such as Buffalo and Chicago, among others, where inventory remains tight.  In these areas, price declines have been minimal, and lower rates from the Fed, which should reasonably be expected to lead to lower mortgage rates over time, will very likely reignite home prices and serve to only exacerbate housing affordability issues.

The opposite is true for relatively over-supplied metros like Austin, San Antonio, Phoenix, and Las Vegas.  In these metro areas, lowering mortgage rates should slow or stop home price declines. 

This is a reminder for buyers, sellers, and developers to concentrate on local market analysis as opposed to national headlines.  Local conditions, as always, drive local prices.  No surprise here.

Endnotes: The following locations provided insights into this piece 

The Fed Raises Alarm Over 'Deterioration' in the US Housing Market

The Beracha and Johnson Real Estate Initiative

Housing Market Predictions For 2025: When Will Home Prices Drop?.

Is Austin’s Housing Market Cooling in 2025?.

FRED (Federal Reserve Economic Data)

Contact: Ken Johnson, Ph.D.
Christie Kirkland Walker Chair of Real Estate
The University of Mississippi
School of Business Administration