With September here, the spotlight is firmly on the Federal Reserve (the Fed). The consensus is that a cut to the Federal Funds Rate is imminent at their next meeting, largely due to recent indicators showing a cooling in inflation and a slowdown in the job market. Mark Zandi, Chief Economist at Moody’s Analytics, noted:
“They’re ready to cut, just as long as we don’t get an inflation surprise between now and September, which we won’t.”
But what does this mean for the housing market, and more importantly, for you as a potential homebuyer or seller?
The Federal Funds Rate is one of the key factors that influences mortgage rates – things like the economy, geopolitical uncertainty, and more also have an impact.
When the Fed cuts the Federal Funds Rate, it signals what’s happening in the broader economy, and mortgage rates tend to respond. While a single rate cut might not lead to a dramatic drop in mortgage rates, it could contribute to the gradual decline that’s already happening.
As Mike Fratantoni, Chief Economist at the Mortgage Bankers Association (MBA), points out:
“Once the Fed kicks off a rate-cutting cycle, we do expect that mortgage rates will move somewhat lower.”
And any upcoming Federal Funds Rate cut likely won’t be a one-time event. Lawrence Yun, Chief Economist at the National Association of Realtors (NAR), says:
“Generally, the rate-cutting cycle is not one-and-done. Six to eight rounds of rate cuts all through 2025 look likely.”
Here’s what experts in the industry project for mortgage rates through 2025. One contributing factor to this ongoing gradual decline is the anticipated cuts from the Fed. The graph below shows the latest forecasts from Fannie Mae, MBA, NAR, and Wells Fargo (see graph below):
1. It Helps Alleviate the Lock-In Effect
For current homeowners, lower mortgage rates could help ease the lock-in effect. That’s where people feel stuck within their current home because today’s rates are higher than what they locked in when they bought their current house.
If the fear of losing your low-rate mortgage and facing higher costs has kept you out of the market, a slight reduction in rates could make selling a bit more attractive again. However, this isn’t expected to bring a flood of sellers to the market, as many homeowners may still be cautious about giving up their existing mortgage rate.
2. It Should Boost Buyer Activity
For potential homebuyers, any drop in mortgage rates will provide a more inviting housing market. Lower mortgage rates can reduce the overall cost of homeownership, making it more feasible for you if you’ve been waiting to make a move.
While a Federal Funds Rate cut is not expected to lead to drastically lower mortgage rates, it will likely contribute to the gradual decrease that’s already happening.
And while the anticipated rate cut represents a positive shift for the future of the housing market, it’s important to consider your options right now. Jacob Channel, Senior Economist at LendingTree, sums it up well:
“Timing the market is basically impossible. If you’re always waiting for perfect market conditions, you’re going to be waiting forever. Buy now only if it’s a good idea for you.”
The anticipated cut to the Federal Funds Rate, fueled by improving inflation metrics and a cooling job market, is expected to positively, albeit gradually, influence mortgage rates. This shift could open new doors for you in the housing market. When you're ready, let's connect so you can be fully prepared to act when the moment is right for you.