This Mortgage-Rate Decline Could Trigger a Housing Boom

The pandemic upended the economy five years ago...

Financial norms broke down left and right. The effects were far-reaching – and often confusing.

We saw the tightest labor market of our lifetimes... a painful bout of inflation... and the social unrest you'd expect when the system isn't working as intended.

Markets stopped behaving logically. And that's especially clear when you look at the housing market.

By 2022, housing activity had essentially stopped. That should have spelled doom for the overall economy... But instead, we shrugged it off.

The good news is, this deep freeze could be over soon. Mortgage rates are falling. And that could be the spark that finally gets this crucial part of the economy up and running again.

The Economic Bump From Falling Mortgage Rates

"The economy can't perform well if the housing market is in the dumps."

Just about every economist would have agreed with that sentence in 2019. But in 2025, things aren't so clear.

The housing market – and all the services that come with it – is estimated to make up around one-sixth of the overall economy. And if such a large chunk of the economy is struggling, growth should be hard to come by.

But that hasn't been the case in recent years...

Mortgage rates spiked in 2022. As housing affordability tanked, activity slowed to a crawl... with mortgage and refinancing activity both falling by more than 50%.

Yet, despite it all, the economy held up just fine. Real gross domestic product has grown between 2.5% and 2.9% in each of the past three years.

This is a rare situation. It means the slowdown hasn't crushed the financial backdrop like it usually would. After all, we haven't seen home prices crash... It's just activity in the sector that has ground to a halt.

There's good news, though. The pain could be over soon... because mortgage rates are falling. Take a look...

The 30-year mortgage rate from Bankrate has dropped nearly a full percentage point since its recent high in January. And we're approaching the lowest rate since last September.

If we break through that level, we'll be looking at a multiyear low for mortgage rates. And that's likely on the way...

The Federal Reserve Is About to Ignite the Housing Market

You see, the Federal Reserve is becoming concerned about the weakened labor market. Fed Chair Jerome Powell mentioned it in his comments at the Jackson Hole Economic Policy Symposium in late August. Here's what he said...

With policy in restrictive territory, the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance.

In other words, the Fed is just as worried about the labor market as it is inflation. That means interest-rate cuts are likely on the way...

And lower rates will continue to push mortgage rates lower... which will thaw the frozen housing market.

That's a good thing for this ravaged sector and for the overall economy. Plus, it creates opportunities in the stock market.

This is a trend to watch closely in the coming months. If the housing market comes back to life, it'll be a win for the economy and for investors.

Good investing,

Brett Eversole