There’s some evidence that the gloom is beginning to lift in the single-family home market. Mortgage rates have dropped, and homebuilder confidence is up this month, according to the latest National Association of Home Builders/Wells Fargo Housing Market Index.

It’s no coincidence that all this comes as the Federal Reserve’s policymaking panel huddles for a likely decision to cut interest rates, to be announced Wednesday. So at this stage, how optimistic can we be about the housing market?

Even in standout locations, like Florida and Texas, the headwinds have been a-blowing.

“Certainly, things have been a bit depressed,” said Chris Bolio, a builder with the Greater Houston Builders Association.

First there was a spike in the cost of labor and materials, then high rates weighed on the cost of borrowing for builders and buyers. But now, Bolio said he sees a stable market ahead as monetary policy eases.

“It’s going to make things a little bit more affordable that sometimes that two-tenths of a point or that half of a point in interest makes the difference between people being able to afford a mortgage and not,” he said.

A Fed rate cut would also make it cheaper to build a home since financing costs are closely tied to short-term interest rates.

“Those financing costs of these homebuilders will fall as well, and some of those cost savings will be passed through in the form of cheaper houses for homeowners,” said Stijn Van Nieuwerburgh, a professor at Columbia University.

While builder enthusiasm may have rounded a corner, it’s hard to be too optimistic, said Jessica Lautz, deputy chief economist and vice president of research at the National Association of Realtors.

“I think it’s good to keep in mind that this is coming from an all-time low from this year, and also this is the lowest marker that we’ve actually seen for any September dating back to 2012,” she said.

And Robert Dietz, chief economist at the NAHB, said even if the market picks up, there are lingering problems. For one, high home prices.

“And then on the supply side of the market, we think that there’s a housing deficit of about a million and a half homes,” Dietz said, adding that labor force challenges, zoning laws and regulatory policies are still straining homebuilders. 

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