Fed Cuts Rates as Employment Softens, But Real Estate Recovery Remains Uncertain

Buyers Have More to Consider Than Just Interest Rates

For flippers hoping lower rates could encourage indecisive buyers to take action, it’s unclear whether there is the appetite for renters to transition into homeownership amid an uncertain economy and low employment.

As of 2024, home sales are at their lowest level since 1995, which also coincided with years of high interest rates. Additionally, about 46 million Americans are currently between the ages of 30 and 39, a prime time for homebuying.

Yet it’s a tough time for many to take on extra debt. Credit card debt is higher than it’s ever been, jumping by $27 billion in the second quarter of 2025 and now totaling $1.21 trillion, according to the Federal Reserve Bank of New York. 

Home prices have also been on a tear in recent years. NAR’s July existing home sales data showed 25 consecutive months of year-over-year price increases. July’s median price was the highest ever recorded at $422,400, despite a recent softening of the market.

According to the Atlanta Federal Reserve’s Home Ownership Affordability Monitor, the current median-priced home requires 48% of today’s median household income. The country’s median-priced principal and interest mortgage payment has more than doubled in five years, soaring from $1,043 in June 2020 to $2,361 in June 2025. Once taxes and insurance are added to that number, total monthly payments have increased from $1,564 to $3,162, outpacing wage growth in that period.

Behind the Heated Rhetoric 

President Donald Trump has continually criticized Fed Chair Powell for not cutting the federal funds rate, which he says will drop mortgage interest rates, but it’s not that simple. In fact, the last time the Fed dropped the funds rate, mortgage rates actually increased by a point. That’s because mortgage rates are more closely aligned with the yields on 10-year U.S. Treasuries.

Traditionally, there is about a 1.5-to-2-point spread between those yields and mortgage rates. Sudden rate drops could create chaos in bond markets, causing unpredictability in rates, although a federal funds rate drop generally leads to a corresponding drop in mortgage rates. 

Former chief economist at Fannie Mae and founder of Duncanomics Doug Duncan believes that the notion of a Fed reserve rate cut being the magic pill to fix the housing market is largely wishful thinking; rather, the market will reset over time. He told Bankrate:

“There will be a gradual increase in household incomes. There will be rate declines, but they’re not going to be dramatic. Builders will continue to build, and some of [the reset] will occur because of life events—job changes, or their kids finally moving out of the basement. But that will take time.”

Final Thoughts: How Investors Can Take Advantage of the Rate Cut

One rate cut is unlikely to suddenly return us to 2021 and earlier, with flippers making fortunes, BRRRR still being an effective investment strategy, and cash flow being a realistic outcome for mortgage investors. The winners of any rate cuts will be people with equity in their homes and investments who can access it through HELOCs and other types of loans. 

That doesn’t mean they should go out and try to secure break-even or non-cash-flowing rentals; instead, they should optimize the units they have by performing upgrades and increasing rents.

If buying more rentals is a goal, using a HELOC to buy a rental for cash and then refinancing if and when rates drop further could be a strategy, but you would need to run the numbers meticulously. Owning doors speculatively in the hope of cash flowing at a later date is asking for trouble. 

Save yourself the stress, work with what you have, monitor the market, keep working and saving, look for further cuts, and live to fight another day. Real estate investing is not a sprint; it’s a marathon.