The Fed brought some relief to the housing market

• Daily mortgage rates dropped to 6.82% on Thursday, the lowest since May.
• That follows shortly after the Fed pointed to three rate cuts on the table in 2024.

The Federal Reserve's forecast for easing monetary policy in 2024 fueled stocks to new highs, dragged bond yields lower, and sparked a fresh wave of exuberance across Wall Street.

But the housing market is also getting some needed relief from the forecast of lower interest rates in 2024.

While the Fed kept its benchmark rate unchanged on Wednesday, its Summary of Economic Projections nodded to the potential for as many as three rate cuts next year. Daily rates on the 30-year fixed mortgage dipped to 6.82% on Thursday, according to Mortgage News Daily, the lowest since May.

The fed funds rate does not entirely determine mortgage rates—other factors include mortgage demand, inflation, and general economic conditions—but it does help influence them up or down. Mortgage rates on the most popular home loan haven't moved below 7% since July, and the housing market seems to be cheering on Jerome Powell and the central bank's guidance.

As recently as October, mortgage rates hit 8% for the first time since 2000. Now, based on Wednesday's decision and market reaction, the Fed appears on track to help ease housing affordability after two years of tough markets dynamic that both potential buyers and current owners have had to navigate.

Current homeowners who have been reluctant to move because of high mortgage rates could be unshackled, bringing more homes on the market for potential buyers.

Yet it is still possible a sharp drop in mortgage rates throws the housing market further out of whack in the near term, with lower rates opening the gates to a flood of demand before more supply comes online.

"If rates come down too much — and mortgage rates follow — we'll see the current supply-demand imbalance exacerbated as pent-up demand gets released into an undersupplied market, putting upward pressure on home values – and inflation," Jack Macdowell, chief investment officer at Palisades Group, wrote in a note Wednesday.

"Until mortgage rates drop below 6%, it is unlikely that pent-up deferred sales will meaningfully contribute to supply," Macdowell added.

Real estate group Redfin has forecasted mortgage rates to drop into the mid-6% range in 2024, and Wednesday's Fed move reinforces that prediction.

Strategists at Goldman Sachs, meanwhile, wrote in a note prior to the Fed meeting Wednesday that housing starts and home prices will crawl higher in the coming years, while existing home sales will remain flat. The bank has a no-recession scenario as part of its base case, which should keep prices propped up.