For the first time in nearly a year, mortgage rates in Alabama have taken a meaningful dip — hitting their lowest point since October 2024. Following the Federal Reserve’s 0.25% September rate cut, average 30-year fixed mortgage rates fell to 6.26%, bringing welcome relief to buyers after months of elevated borrowing costs.

From mortgage rates to affordability, and what this activity means for the state’s real estate market, here’s how the Fed’s decision is shaping Alabama housing.

The Federal Reserve’s move lowered the overnight lending rate between banks, which trickles into many borrowing costs for consumers, including credit cards and home equity loans. While this rate isn’t the one reflected to homebuyers getting a mortgage, it helps set the tone for the broader financial market.

When it comes to mortgages, the story is more nuanced. Rates are closely tied to the yield on the 10-year U.S. Treasury bond, which shifts based on investor expectations about the economy. The Fed’s cut can nudge those yields lower. When that happens, mortgage rates tend to follow. That’s why rates dipped.

“Mortgage rates fell in anticipation of the Fed’s rate cut on September 17, yet over the last week average 30-year fixed rates already climbed back up slightly to 6.30% by September 25,” said Alabama REALTORS® economist Evan Moore. “It’s a positive shift, but history shows these dips don’t always last.”

In short: The Fed doesn’t directly control mortgage rates, but its actions put downward pressure on them.

The drop has translated into impactful savings for households. Compared to June, buyers of a median-priced home — $222,811 in August, down 1.9% month over month and 5.4% year over year — are saving an average of $155 per month on their mortgage payments, which equates to more than $1,800 annually.

“These savings are significant for the typical household in Alabama,” Moore said. 

While this impact is unquestioned, not all buyers benefit equally.

Current homeowners are better positioned to take advantage of lower rates because they’ve built equity during the pandemic-era price run-up.

“The recent cuts are more likely to favor existing homeowners who are looking to move up,” Moore said. “Prices have climbed substantially since the pandemic, and existing homeowners have likely found improved equity positions. These price increases make it more difficult for first-time buyers who did not experience those equity gains.”

From lower interest rates to softening prices, higher inventory as evidenced by a nearly 15% increase year-over-year, and longer days on market, is it safe to assume the market has shifted to one that favors buyers?

According to Moore, it’s still too early to determine.

“It is a bit early to declare the residential real estate market as a buyer’s market, but it is moving in that direction,” he said. “While the median price has declined in recent months, it remains relatively high.”

Looking ahead, Moore expects Alabama’s housing activity to follow its usual seasonal slowdown into the holiday months — even with the recent boost in affordability.

“I anticipate that sales activity will likely follow its usual seasonal slowdown,” he said. “The recent decline in mortgage rates should help to spur some additional sales activity, but rates aren’t yet low enough to cause a significant increase, and economic pessimism may keep buyers on the sidelines.”