No, reducing first-time home loan interest rates generally does not lead to fewer loans. Lower rates typically make borrowing more affordable, encouraging potential buyers to enter the market. However, the relationship between rate cuts and loan volume depends on broader economic conditions, such as housing inventory, consumer confidence, and employment stability.

The primary reason is that reduced interest rates lower monthly mortgage payments, increasing affordability for first-time buyers. This often stimulates demand, leading to higher loan originations. For example, during the Federal Reserve’s rate cuts in 2020–2021, mortgage applications surged by 237% year-over-year in April 2021 (Federal Housing Finance Agency), coinciding with a 16.4% drop in average 30-year fixed rates to 2.65% (MBA). Similarly, in 2012–2013, when rates fell from 3.8% to 3.5%, home sales increased by 9% (National Association of Realtors). However, exceptions exist. If housing supply is critically low or economic uncertainty persists (e.g., high unemployment), lower rates may not translate to more loans. For instance, in 2022, despite rates dropping to 6.5% in July, loan volumes dipped due to a 14% inventory shortage (Zillow). Thus, while rate cuts generally boost loan activity, their effectiveness hinges on complementary factors like inventory and economic stability.