Federal Reserve Chair Jerome Powell speaks with interns at the central bank in this undated handout photo from the summer of 2024. Photo courtesy of the Federal Reserve

With inflation finally beating a retreat, the Federal Reserve is widely expected to cut its benchmark interest rate this week in what would be the first reduction in four years.

However, it remains to be seen whether the Fed’s long-awaited cut will be enough to save the economy from sliding into a marked slowdown or even a recession.

Any rate cut by the Fed will take at least six months to work its way through the economy and will be for naught if not followed by other reductions in the months ahead.

Meanwhile, the slowing momentum in the jobs market is likely to continue unabated into early 2025, and it’s anyone’s guess whether by then we will have downshifted from modest job gains to losses.

But the Fed’s long-awaited cut comes too late to save the housing market, which is now mired in what is likely to be a prolonged slump that could take years to climb out of.

And like the downward momentum in the jobs market, it will take a lot more than just a rate cut or two to revive stalled plans across the country for new homes, condominiums and apartments.

Developments Take Time

Home sales are likely to rebound sooner, with buyers who have been stuck on the sidelines for the past two years eager to move ahead with their lives and ready to take advantage of a 100- or 200-basis-point reduction in mortgage rates by the time the spring 2025 selling season rolls around.

But what about plans, say, for a $50 million apartment complex in Boston or the suburbs? That is a much more complicated endeavor and can’t be revived or turned around overnight.

Developers looking to get projects back on track will likely be faced with months of renegotiations with lenders, and with local officials as well as changes are made to proposals to make then pencil in.

In fact, local real estate executives have confided that it will likely take more than a rate cut of a quarter or half a percentage point to start to thaw frozen projects.

Rather, we are not likely to see even those initial stirrings as developers dust off shelved plans until the Fed lowers rated by 2 percentage points or more.

And that could take several months at least.

Meanwhile, the fallout from the housing slump will be with us for years to come.

Construction Slowdown Will Echo

The shortage of homes for sale and apartments for rent, already dire, will only get worse over the next two to three years as the impact of the collapse in new construction since mid-2022 is felt in the marketplace.

We are literally missing tens of thousands of new housing units in Boston and cities, towns and suburbs across the state that would otherwise have been built, but for Fed’s necessary, but painful, rate hikes.

And it’s a number that will only continue to grow over the next few years until residential construction and the number of new homes and apartments finally returns to pre-2022 levels, which, frankly were none too impressive anyway.

Despite how this sounds, I am not making a case that the Fed erred in hiking rates.

Left to its own devices, inflation can have a severe, destabilizing effect on both the economy and society at large. We’ve certainly seen evidence of that over the past few years, with some voters, their daily lives hammered by spiraling prices, even willing to gamble again on a second Trump term.

Come to think of it, the 1970s weren’t a picnic either.

Politicians Bear Some Blame, Too

But has the Fed waited too long to shift gears and cut rates? That’s an open question, with the softening jobs market a sign that the central bank may have hemmed and hawed too long.

However, the Biden administration, Congress and state and local governments are also guilty of failing to fully anticipate what all those Fed rate hikes would do to housing production.

Scott Van Voorhis

Two years after the Fed started slamming the brakes on the economy, we are finally starting to see proposals on the national level by Democratic presidential nominee Vice President Kamala Harris, and to a lesser degree by Republican nominee former President Donald Trump, aimed at reviving housing construction.

Here in Massachusetts, the Healey administration and lawmakers teamed up this summer to pass a multibillion-dollar housing bond bill as well, with promises of more housing policy ideas to come perhaps as early as next year.

But all these efforts would have been a lot more effective if they had been launched two years ago as the Fed’s rate hikes began wreaking havoc in the housing market.

Better late than never? Sure. But tell that to all the struggling buyers and renters out there across the country wondering how things could have gone so terribly wrong.

Scott Van Voorhis is Banker & Tradesman’s columnist and publisher of the Contrarian Boston newsletter; opinions expressed are his own. He may be reached at sbvanvoorhis@hotmail.com.