What the Expected Fed Rate Cut Means for Builders

We’re only weeks away from the highly anticipated cut in interest rates by the Federal Reserve. Here’s what it could mean for the building and construction trade.

It’s been talked about for almost a year, the Federal Reserve has stuck to its guns and kept interest rates at the highest level in 20 years. Now, based on comments from the Fed and informed speculation from industry observers, it appears the central bank will finally begin to reduce rates, most probably at its meeting next week.

If it does – and the cut could only be a quarter point – the rate reduction could send a positive signal across the entire American economy, from the stock market to the housing sector which has been paralyzed by hefty mortgage rates. It should be noted that much of this expected surge has already been built into business and we’re already seeing signs of companies and consumers expecting those lower rates.

Take the housing starts sector, for instance. In June starts increased over the year before and while the trend did not hold in the following month, builders are suggesting they are anticipating increasing their activity in the fall and into the end-of-year period.

National Association of Home Builders chief economist Rob Dietz, in recent comments, said “For smaller, private builders in markets that are undergoing expansion, there is an opportunity to play some catch-up, For the land development sector, the availability of financing to acquire and develop land and lots is going to be broadly positive for the industry [for] builders big and small.”

Dietz and others believe there will be a second rate cut of another quarter point at the next Fed meeting in December and assuming there is no broad change in the economy they will continue into 2025. “The impact on long-term interest rates is that the 30-year fixed-rate mortgage by the end of 2025 could fall below 6% on a sustained basis,” Dietz said. “That would be good for demand.”

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