Federal Funds Rate Cut - Mortgage Rates | Kevin Baum

The Federal Reserve (The Fed) is poised to make a significant move that could ripple through the housing market. Experts predict a cut to the Federal Funds Rate at their upcoming meeting, mainly fueled by cooling inflation and a slowing job market. This decision holds potential benefits for both homebuyers and sellers, so let's break down what it all means for you.

Why a Federal Funds Rate Cut Matters

The Federal Funds Rate plays a crucial role in influencing mortgage rates. When the Fed cuts this rate, it sends a signal about the broader economy, and mortgage rates tend to follow suit. While a single rate cut might not cause a dramatic drop in mortgage rates, it could contribute to the ongoing gradual decline we're already witnessing.

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.”

Furthermore, this likely won't be a one-off event. Experts foresee multiple rate cuts extending through next year.

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.”

Projected Impact on Mortgage Rates

Industry forecasts point to a continued gradual decline in mortgage rates, partly fueled by the Fed's anticipated cuts. The graph below shows the latest forecasts from Fannie Mae, MBA, NAR, and Wells Fargo (see graph below):

With inflation improving and the job market cooling, a Federal Funds Rate cut is expected to lead to a moderate decline in mortgage rates. Here's why this is positive news for both buyers and sellers:

1. Relief from the Lock-In Effect

Lower mortgage rates could offer relief to homeowners feeling "locked in" due to higher current rates compared to their existing low-rate mortgages. This could encourage some sellers to re-enter the market, though a flood of sellers isn't expected as many remain cautious.

2. Boost to Buyer Activity

Any drop in mortgage rates creates a more inviting environment for homebuyers. Lower rates translate to reduced overall homeownership costs, making it more feasible for those who have been waiting to make a move.

What Should You Do?

While the anticipated rate cut won't lead to drastically lower mortgage rates overnight, it will likely contribute to the ongoing gradual decrease. It's a positive shift for the housing market's future, but it's important to consider your individual situation. Don't try to time the market perfectly. If buying or selling makes sense for you now, don't wait.

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.”

Bottom Line

The expected Federal Funds Rate cut, fueled by improving economic indicators, is likely to positively impact mortgage rates. This could unlock new opportunities for you in the housing market. When you're ready to take the next step, let's connect to ensure you're prepared to act at the right time.