Here’s what the Federal Reserve’s interest-rate cut means for mortgage rates
The Federal Reserve announced Wednesday that it was cutting interest rates for the first time in four years. How far will mortgage rates fall from here on out?
Not so much, economists say.
The central bank announced a 50-basis-point cut to its benchmark rate, as it seeks to move its monetary policy to a more neutral stance.
Many in the real-estate sector have pointed to high mortgage rates as one of the key reasons why buying a house has become so unaffordable in recent years. The 30-year rate had surged from an ultralow 3% to nearly 8% last year, adding substantial borrowing costs for home buyers. That’s on top of soaring home prices, which hit record highs this year.
Since then, mortgage rates have come down in anticipation of the Fed’s rate cut. And for that reason, the central bank’s announcement is unlikely to have a big impact on mortgage rates, economists told MarketWatch, as mortgage markets had already priced in a rate cut of that magnitude.
“Mortgage rates likely had this cut – and this expected rate path – priced in, and lower mortgage rates, now close to 6%, have resulted in much more refinance and some additional purchase activity in recent weeks,” Mike Fratantoni, chief economist at the Mortgage Bankers Association, said in a statement.
The average contract rate for a 30-year mortgage was 6.15% for the week ending Sept. 13, according to the MBA. That’s down from 6.29% the week prior. Rates are now at the lowest level since September 2022.
Lisa Sturtevant, chief economist at Bright MLS, echoed that sentiment.
“Many prospective homebuyers and sellers are watching the Fed [and] expecting a big drop in mortgage rates after today. However, much of today’s rate cut has largely been baked in,” she explained, “with rates on the 30-year fixed-rate mortgage falling since early July. It would be surprising to see a substantial drop in mortgage rates this week.”
Still, rates could drift slightly downward in the coming weeks, others argued.
“The Fed’s 50-[basis-point] rate cut likely adds downward momentum for mortgage rates, which have already come down materially since May as Treasuries have rallied,” Eric Orenstein, senior director at Fitch Ratings, said in a statement.
Fannie Mae (FNMA) expects the 30-year mortgage rate to average 5.7% by the end of 2025, according to its September forecast.
“Rates could bottom out between 6% to 6.2% throughout the rest of the year and into the high-5% [range] by next spring,” Ralph McLaughlin, a senior economist at Realtor.com, said in a statement. (Realtor.com is operated by News Corp subsidiary Move Inc. MarketWatch is a unit of Dow Jones, also a subsidiary of News Corp.)
And as rates fall, “we should initially expect signals of increased activity to emerge from the refi market, then followed by higher mortgage-application activity at the beginning of next year,” McLaughlin added, “as both buyers and sellers ramp up their activity in the spring buying season.”
As for home prices, expect them to continue their march upward. “Since buying power increases as mortgage rates fall, we should expect home price growth to reaccelerate sometime in the spring, especially if historically laggy inventory is slow to respond,” McLaughlin said.