A MARTÍNEZ, HOST:
The Federal Reserve, America's central bank, meets today and is expected to announce interest rate cuts tomorrow. Now, we know this because, frankly, Fed Chair Jerome Powell has been saying cuts are coming, albeit in the famously indecipherable Fed speak, like this from March.
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JEROME POWELL: It will likely be appropriate to begin dialing back policy restraint at some point this year.
MARTÍNEZ: There you go. A cut this week would be the first since the Fed started raising rates to fight inflation 2 1/2 years ago. Kenny Malone from our Planet Money podcast says one group in particular has been waiting for this moment.
KENNY MALONE, BYLINE: In a word, Brenda Miller's (ph) Los Angeles house is...
BRENDA MILLER: Cozy is charitable.
MALONE: Her two-bed, one-bath, 720-square foot house was fine with one kid, but now there are three plus a dog and a cat and two frogs. And so more space would make sense. The problem is Brenda has an amazing mortgage rate.
MILLER: Two-point-six-two-five, which is super low. I know.
MALONE: Yeah, mortgage rates are more than double that today. Brenda says she can't afford to move to a bigger place and drop her amazing mortgage rate for today's much higher mortgage rates.
MILLER: That would be thousands, literally thousands of dollars more at the current interest rates.
MALONE: Thousands more per month.
MILLER: And that is just not feasible.
MALONE: Brenda is one of thousands and thousands of Americans trapped in so-called golden handcuffs. They're lucky to have some of the lowest mortgage rates in history. But moving would mean giving up those mortgages, so they don't, and it's locking up housing for everybody.
JULIA FONSECA: You can think of the housing market as this ladder.
MALONE: Julia Fonseca is a professor of finance at the University of Illinois and says, in normal times, there tends to be a natural progression to this housing ladder for lots of people.
FONSECA: So one step is going to be rentals. The next step is going to be smaller homes. Another step is going to be bigger homes.
MALONE: But her research shows that the ladder is clogged up. Like 60% of borrowers are locked into mortgages at or below 4%. And they're often unwilling to move for things like new jobs or to be closer to family or even to downsize from larger homes when their kids move out.
FONSECA: So owners of large homes are staying put. Now, that's going to make it harder for owners of smaller homes to upgrade, and that in turn is going to make it harder for renters to then buy their first home because those are typically those smaller homes.
MALONE: So will this start to unlock when the Fed finally cuts rates? Well, this cut is expected to be a quarter or a half a percentage point. And since Jerome Powell and his colleagues at the Fed have been telegraphing this move for so long, the rate cut is, to some degree, already baked into mortgage rates today. So maybe it's more like we're starting to see the start to the start of the unlocking. Sounds like Fed speak. But Brenda Miller in Los Angeles knows that she'll be wearing her golden handcuffs for the foreseeable future.
MILLER: I'm really thankful that we have a house. And I'm thankful that we have a place to live. But at the same time, I mean, I have dreams where I'm, like, walking through a house and it's like, oh, I didn't know this room was here and, like, finding hidden space. And then I wake up and it's like, no, there's no hidden space, so we just have to get creative.
MALONE: Kenny Malone, NPR News.
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