It was the first time in four years that the Federal Reserve cut interest rates, which they said on Wednesday. How much more will mortgage rates drop after this?
Economists say not so much.
This is because the central bank wants to make its monetary policy more neutral, so it cut its base rate by 50 basis points.
A lot of people in the real estate business say that high mortgage rates are one of the main reasons why getting a house has become so expensive lately. The 30-year rate went from an incredibly low 3% to almost 8% last year, making it much more expensive for people to borrow money to buy a house. Plus, home prices have already been going through the roof—they hit a new high this year.
To get ready for the Fed’s rate cut, mortgage rates have gone down since then. Economists told MarketWatch that the central bank’s news probably won’t have a big effect on mortgage rates because mortgage markets were already planning for a rate cut of that size.
“Mortgage rates likely priced in this cut and this expected rate path,” said Mike Fratantoni, chief economist at the Mortgage Bankers Association. “Lower mortgage rates, now close to 6%, have led to much more refinancing and some additional purchase activity in recent weeks.”
According to the MBA, the average term rate for a 30-year loan was 6.15% for the week ending September 13. That’s less than the 6.29% seen the week before. Since September 2022, rates have not been this low.
Lisa Sturtevant, who is the head economist at Bright MLS, agreed with that.
“Many people who want to buy or sell a home are keeping an eye on the Fed and think that mortgage rates will drop a lot after today.” “However, most of today’s rate cut is already priced in,” she said. “Rates on 30-year fixed-rate mortgages have been going down since early July.” This week, it would be strange to see a big drop in mortgage rates.
Others said that rates might go down a little in the next few weeks.
“The Fed’s 50-basis-point rate cut is likely to add to the downward momentum for mortgage rates,” said Eric Orenstein, senior director at Fitch Ratings. “Rates have already dropped significantly since May as Treasuries have rallied.” Fannie Mae FNMA -1.95% said in September that the average 30-year mortgage rate would be 5.7% by the end of 2025.
An expert at Realtor.com named Ralph McLaughlin said in a statement, “Rates could bottom out between 6% and 6.2% for the rest of the year and into the high-5% range by next spring.” (Realtor.com is run by Move Inc., a division of News Corp. MarketWatch is a part of Dow Jones, which is a part of News Corp.
“We should first expect signs of increased activity to emerge from the refi market,” McLaughlin said. “Then we should expect higher mortgage application activity at the beginning of next year as both buyers and sellers ramp up their activity in the spring buying season.”
When it comes to home prices, they are likely to keep going up. “Because lower mortgage rates make it easier to buy a home, we should see home price growth pick up again sometime in the spring, especially if inventory is slow to respond as it usually is,” McLaughlin said.
