As we step into September, attention is firmly focused on the Federal Reserve. Most analysts anticipate a cut to the Federal Funds Rate in their upcoming meeting, largely due to recent indications of cooling inflation and a slowdown in the job market. Mark Zandi, Chief Economist at Moody’s Analytics, remarked:
“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?
Why a Federal Funds Rate Cut Matters
The Federal Funds Rate is a significant factor that impacts mortgage rates, but it's not the only one—other elements like the state of the economy, geopolitical events, and more also play a role. When the Fed lowers the Federal Funds Rate, it provides insight into broader economic trends, and mortgage rates typically react. Although a single rate cut may not cause a sharp decrease in mortgage rates, it can support the ongoing gradual decline we've been seeing.
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.”
The Projected Impact on Mortgage Rates
Here’s what industry experts are forecasting for mortgage rates through 2025. One key factor contributing to this expected gradual decline is the anticipated rate cuts from the Fed. The graph below highlights the most recent projections from Fannie Mae, MBA, NAR, and Wells Fargo (see graph below):
So, with recent improvements in inflation and signs of a cooling job market, a Federal Funds Rate cut is likely to lead to a moderate decline in mortgage rates (shown in the dotted lines). Here are two big reasons why that’s good news for both buyers and sellers:
1. It Helps Alleviate the Lock-In Effect
For current homeowners, lower mortgage rates could help alleviate the lock-in effect, where people feel tied to their current home because today’s rates are higher than the ones they secured when purchasing. If concerns about losing your low-rate mortgage and facing higher costs have kept you from selling, a slight decrease in rates might make selling more appealing. However, it’s unlikely this will lead to a surge of sellers entering the market, as many homeowners may still be hesitant to part with their existing mortgage rates.
2. It Should Boost Buyer Activity
For potential homebuyers, a drop in mortgage rates could make the housing market more attractive. Lower rates can reduce the total cost of owning a home, making it more affordable for those who have been waiting for the right time to make a move.
What Should You Do?
Although a Federal Funds Rate cut isn’t expected to cause a sharp drop in mortgage rates, it will likely support the gradual decline already underway. While the anticipated rate cut is a positive signal for the future of the housing market, it’s essential to weigh your options in the present. As Jacob Channel, Senior Economist at LendingTree, aptly puts it:
“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.”
Bottom Line
The anticipated Federal Funds Rate cut, fueled by cooling inflation and slower job growth, is expected to positively influence mortgage rates, though gradually. This shift could open up new opportunities for you. When you're ready, let’s connect so you’ll be well-positioned to take action when the timing is right for you.
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