Interest Rate Cuts Have Lifted Confidence – But Deals Still Lag

Written by:

Alejandra Rodriguez

Date:

12 Mar 2026

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If you looked only at agents’ appointment books and weekend open houses, you might think the housing market was finally picking up steam. Mortgage-rate cuts have improved buyer confidence and increased market activity. The problem is that – at least so far – that activity hasn’t translated into increased sales.

Rates have slipped somewhat from their recent peaks, and that modest change has pulled many people back into conversation after a long standstill. Agents are fielding more calls, open houses are drawing bigger crowds, and people who had paused their plans to buy are again running payment scenarios and touring homes. It isn’t a boom exactly, but the market is noticeably more active after a long stretch in which high rates and tight credit kept both sides largely on the sidelines.

Even so, that warmer mood has not produced a comparable jump in closed deals. Monthly payments remain high, lenders are still cautious, and millions of homeowners are locked into very low mortgages that make moving unattractive. The result is a market that looks livelier on the surface while outcomes remain largely the same.

Why Cuts Haven’t Moved the Needle

Turns out the interest-rate moves that make headlines are not the ones that actually govern most housing decisions. The Fed’s policy rate sits at the short end of the market, while mortgages, cap rates, and lending terms are driven primarily by longer-term Treasury yields, lender spreads, and a host of other costs that shape monthly payments.

That mismatch helps explain why recent cuts have felt underwhelming to many in the industry. As Reagan Pratt of DePaul University puts it, “the rates most important for real estate are at the long end of the curve.” Homebuyers typically borrow for 30 years, so mortgage rates track long-term bond yields – especially the 10-year Treasury – rather than the Fed’s short-term policy rate. Those longer-term rates have remained “sticky and volatile,” according to Pratt, as investors weigh economic uncertainty. In that context, small reductions in short-term rates were never likely to jolt a market still wrestling with weak fundamentals.

On the financing side, lenders remain cautious even as policy loosens. Daniel Kaufman, president of Kaufman & Company in Los Angeles, says recent cuts have helped “stabilize cap rates at the margin,” but credit is still tight, spreads remain wide, and leverage is limited. He notes that borrowing is still pricey by historical standards, so most buyers are holding out for higher returns, something a small Fed cut doesn’t fix.

At the household level, the math has barely shifted. Chad Cummings, CEO of Cummings & Cummings Law in Bonita Springs, Florida, points out that mortgage rates are driven more by long-term bonds and lender caution than by the Fed’s rate cuts. Meanwhile, rising insurance premiums, property taxes, and replacement costs continue to push monthly payments higher. The result is that many would-be buyers still fail basic debt-to-income tests, even after recent cuts. Refinancing activity may pick up, Cummings adds, but that does little to revive purchase volume when most borrowers already hold loans below today’s market rate.

The Rate-Lock Barrier

Even if more buyers are back in the market, the other side of the transaction remains largely stuck. Millions of homeowners are sitting on mortgages below 4%, making it painful to trade up, even after recent cuts. Victor Lund of WAV Group estimates that about 80% of outstanding mortgages are under 5%, with many closer to 3%. From that vantage point, a modest Fed cut “doesn’t change the calculus” for someone locked into a 3.1% loan. As he puts it, “the spread is still too painful.”

The same effect applies to move-up sellers. Lower rates have improved buyer sentiment, according to James Barmore of Motto Mortgage, but they haven’t been low or stable enough to justify giving up a sub-4% mortgage. What would matter is 30-year rates that settle convincingly in the mid-5% range and stay there.

Robert Marucci of Better Living Realty frames it more simply: 5% is the “magic number” that could loosen the market. At today’s levels, he says, many owners would nearly double their interest rate if they moved, so they stay put. The result is a supply problem driven less by buyer demand than by homeowner math. Buyers may be ready to engage again, but the homes they want often aren’t coming to market.

What Would Actually Change Behavior

Lower rates alone are unlikely to reset the market unless they are deeper, steadier, and accompanied by easier financing or better affordability. A single cut does little if homeowners believe rates could move back up. 

What would shift behavior, several sources say, is a stretch in which 30-year mortgages settle convincingly in the mid-5% range and stay there. As Barmore puts it, headline cuts alone won’t do it: the signal has to be strong enough that move-up sellers feel comfortable giving up a once-in-a-generation rate.

Even then, cheaper borrowing would have to coincide with looser credit. From Daniel Kaufman’s perspective, additional Fed cuts would matter only if they were paired with clearer forward guidance from the Fed and more competition among lenders. Otherwise, he says, policy moves may stabilize conditions at the margin without generating a real jump in deals.

Affordability remains the other missing ingredient. Showings are up and conversations are more frequent, but buyers are still focused on their monthly payment. Meaningful change would require deeper cuts and some price moderation so that the math actually improves for households. Taken together, the message is consistent: the market needs steadier rates, better credit conditions, and lower monthly payments — not just incremental moves by the Fed.

For now, the housing market sits in an in-between place. Rate cuts have made buyers feel better and nudged activity higher, but they haven’t changed the basic economics that govern whether homes actually trade. Until long-term borrowing costs, credit conditions, and monthly payments shift in a more durable way – and until more owners are willing to give up their low mortgages – the market is likely to keep looking busier than it truly is.