The combination of rising rates and high home prices is the likely driver of recent declines in existing home sales. However, in reality many potential homebuyers are still interested in purchasing a home, keeping the market competitive but leveling off the last two years of red-hot activity. 

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The Federal Reserve met to set the stage for the rest of the year and make one of the most significant actions of Fed Chairman Powell’s one-and-a-half year long tenure. The meeting’s outcome is a quarter-percentage-point interest rate cut, the fifth time since the late 1980s.

Despite unemployment still sitting at a half century low, mild inflation, and the economy growing at a solid rate, this week’s cut is considered a highly unusual decision by many economists which normally would not call for extra stimulus.

Powell and his colleagues at the central bank assured that the decision is not motivated by presidential pressures, but the sole focus on keeping the economy growing. They also stated that it’s better to cut now to prevent a recession than to have to wait until a downturn begins.

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There will be an effect on consumer psychology: having now seen the Fed raise rates in 2017, and with two more rate increases considered very likely, potential homebuyers will get off the fence and into the market, in order to buy a house before rates go any higher.

“The ultimate problem is the impact of rising rates on home values,” said Stu Feldstein, president at SMR Research Corp., a mortgage-research firm. “We’re back into a bubble condition in part because of low rates that have enabled people to buy houses much more expensive than their incomes could afford.”