High mortgage rates are freezing the housing market. But would lower rates actually fix the problem? Let’s break it down.
The Market Is Stuck. So Are We.
Mortgage rates hovering between 6.75% and 7.25% are paralyzing the housing market. Buyers struggle to afford homes. Sellers refuse to give up their pandemic-era rates. Agents, investors, and lenders are monitoring plummeting transaction volume.
In June, the U.S. economy added 147,000 jobs, beating expectations. The unemployment rate dropped to 4.1%, signaling the economy remains too strong for the Fed to justify rate cuts. That may be good news for Wall Street, but it’s not helping Middle America, especially in housing.
Unless mortgage rates fall, the market will stay jammed. But would lower rates actually help? Not as much as some people think, and maybe not in the way they hope.
Why So Many Homeowners Won’t Sell
Two overlapping factors are locking up supply: mortgage rate lock-in and mortgage-free ownership.
According to Redfin and FHFA data:
- 🔒 76% of U.S. homeowners with mortgages have a rate below 5%
- 🔒 86% have a rate under 6% (fhfa.gov, marketwatch.com)
- 🏡 About 38–40% of all U.S. homeowners own their homes outright, without a mortgage
Important clarification: These stats refer to different segments and don’t add up to 100%:
- The 76% and 86% figures refer only to owners with active mortgages
- The 38–40% figure refers to all homeowners, many of whom own outright and aren’t affected by interest rates
Together these groups retain the majority of homes, keeping supply under pressure. In New Jersey—with high property taxes and little new construction—the effect is even more severe.
So What Happens if the Fed Cuts Rates?
The logic is simple:
👉 Lower rates lead to lower payments
👉 Lower payments boost borrower qualifying power
👉 More buyers and sellers enter the market
But the result isn’t straightforward. Here’s why:
📊 Pro/Con: What Happens if the Fed Slashes Rates?
| Pros (Market Loosens Up) | Cons (Affordability Still Struggles) |
|---|---|
| More homeowners list their homes | Buyer demand surges instantly |
| Inventory increases in tight markets | Home prices rebound, especially in desirable NJ towns |
| Refi opportunities benefit current owners | Investors re-enter, squeezing first-time buyers |
| More upsizing, downsizing, relocating | Risk of short-term gains turning into long-term price surges |
| Boosts contractors and renovations | Affordability still tight without price corrections |
What the Experts Are Saying
Jerome Powell, Fed Chair:
“We need clearer evidence that inflation is sustainably moving down before we cut rates.” (June 2025)
Mark Zandi, Chief Economist at Moody’s Analytics:
“The economy is in a delicate balance. A premature rate cut could reignite inflation, but delaying too long could freeze housing further.”
Logan Mohtashami, HousingWire Analyst:
“We’re in a tug-of-war. The Fed wants to see weakness before acting, but housing is already weak—even if not in the ways they measure.”
Thomas Ryan, Capital Economics:
Mortgage rates may need to fall closer to 5% before supply fully normalizes (morningstar.com, sofi.com, reuters.com, reuters.com, reuters.com)
Trade tensions and looming tariffs (August 1 deadline) continue to make Powell cautious—he admitted that without tariffs, rate cuts likely would have already happened.
Trump vs. Powell: Political Pressure Is Rising
Former President Trump has publicly criticized Powell, even threatening to fire him for not cutting rates fast enough. While removing a Fed Chair isn’t straightforward, the political scrutiny is intensifying as the 2025 election approaches. Expect more headlines and uncertainty if Powell resists pressure.
In New Jersey, the Stakes Are Higher
New Jersey homeowners are dealing with unique constraints:
- Nearly 40% own their homes outright
- High property taxes reduce purchasing power
- Tight supply and aging home stock limit options
- Remote work demand is trending downward
Another missing piece: foreclosure inventory.
Historically distressed sales (foreclosures and short sales) typically made up 5%–10% of transactions. Today they account for just 2% of total existing home sales (reuters.com, doorloop.com). In New Jersey, the foreclosure rate is about 1 in 3,347 homes—slightly higher than the national average of 1 in 4,618 (safeguardproperties.com). Despite a small increase in filings, completed foreclosures remain down, and zombie foreclosures are extremely rare (attomdata.com).
With so few distressed properties, buyers and investors have fewer opportunities, further tightening supply in an already constrained state.
What You Should Do Right Now
Homeowners:
- If you’re considering selling, understand your equity and timing—work with hybrid options (market and cash offers)
- Watch Fed updates and the August 1 tariff deadline
Buyers:
- Focus on monthly affordability rather than rate headlines
- Be ready to act fast when rates drop; competition likely to return
- Explore rate buydowns or assumable mortgages to gain leverage
Investors:
- Seek out off-market, distressed or inherited properties
- Use creative financing to navigate current conditions
- Stay alert: if rates drop, competition will likely spike
Bottom Line: Rate Cuts Alone Won’t Fix It, But They Matter
Lower rates won’t solve every problem. But they’re the first and most important step toward freeing up supply, improving affordability, and restoring market activity.
Without them, New Jersey’s housing market will remain tight, expensive, and frustrating for all parties.
Need Clarity in a Cloudy Market?
At NJ House Partners, we specialize in helping homeowners, investors, and heirs cut through complexity. Whether you’re selling, buying, or just exploring options, we offer real guidance—no pressure.
📞 Let’s talk today—for clarity, not gimmicks.
