Here’s what the Federal Reserve's interest rate cut means for mortgage rates.
The 30-year mortgage rate dropped to its lowest level in two years ahead of a critical Federal Reserve policy meeting on Wednesday, marking the first interest rate cut since the pandemic began in 2020. On Wednesday, the Fed announced a 50-basis-point cut to its benchmark rate as it shifts toward a more neutral monetary policy. However, economists suggest that mortgage rates may not see significant declines moving forward. High mortgage rates have contributed to the unaffordability of homes in recent years, with the 30-year rate climbing from around 3% to nearly 8% last year. Although mortgage rates have recently decreased in anticipation of the Fed's cut, experts indicate that the announcement will likely have a limited impact, as markets had already factored in this change. Mike Fratantoni, chief economist at the Mortgage Bankers Association, noted that lower mortgage rates—now close to 6%—have already spurred refinancing and increased purchase activity. The average 30-year mortgage rate was 6.15% for the week ending September 13, down from 6.29% the week before. Lisa Sturtevant, chief economist at Bright MLS, stated that while many homebuyers and sellers hope for a substantial drop in rates, much of the expected reduction has already been accounted for, making significant changes unlikely this week.
Some analysts believe rates may continue to drift slightly lower. Eric Orenstein, senior director at Fitch Ratings, mentioned that the Fed’s cut should exert downward pressure on mortgage rates, which have already declined since May. Fannie Mae forecasts that the 30-year mortgage rate will average 5.7% by the end of 2025, with potential rates settling between 6% and 6.2% for the remainder of the year, possibly dipping into the high-5% range by spring. As rates fall, increased activity in the refinancing market is anticipated, followed by higher mortgage applications in early next year as buyers and sellers prepare for the spring buying season. Regarding home prices, expect continued growth. McLaughlin emphasized that as purchasing power improves with lower rates, home price appreciation is likely to accelerate in the spring, especially if inventory remains sluggish.