It’s September, and everyone’s focused on the Federal Reserve. Most people are anticipating a cut to the Federal Funds Rate in their next meeting, mainly due to recent indications that inflation is easing and the job market is slowing. Mark Zandi, Chief Economist at Moody’s Analytics, noted that this shift could be significant.

““They’re ready to cut, just as long as we don’t get an inflation surprise between now and September, which we won’t.”
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— Mark Zandi, Chief Economist at Moody’s Analytics

What does this mean for the housing market, and what does it really mean for you as a potential homebuyer or seller?

Why a Federal Funds Rate Cut Matters

The Federal Funds Rate plays a significant role in shaping mortgage rates. However, other elements like the economy and geopolitical uncertainty also affect them.

When the Fed lowers the Federal Funds Rate, it's a clear indication of the overall economy's status, and mortgage rates usually react accordingly. Although one rate cut may not cause a significant drop in mortgage rates, it can help continue the gradual decline that's already taking place.

Mike Fratantoni, the Chief Economist at the Mortgage Bankers Association (MBA), highlights that...

““Once the Fed kicks off a rate-cutting cycle, we do expect that mortgage rates will move somewhat lower.”
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— Mike Fratantoni, Chief Economist at the Mortgage Bankers Association (MBA)

Any anticipated cut in the Federal Funds Rate is probably not going to be a one-and-done situation. Lawrence Yun, Chief Economist at the National Association of Realtors (NAR), mentions that we can expect more than just a single reduction.

““Generally, the rate-cutting cycle is not one-and-done. Six to eight rounds of rate cuts all through 2025 look likely.”
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— Lawrence Yun, Chief Economist at the National Association of Realtors (NAR)

The Projected Impact on Mortgage Rates

Experts in the industry predict what mortgage rates might look like through 2025. A key factor behind the expected gradual decline is the anticipated cuts from the Fed. The following graph illustrates the latest forecasts from Fannie Mae, MBA, NAR, and Wells Fargo.

With inflation showing improvement and the job market appearing to cool off, it's likely that a cut in the Federal Funds Rate will result in a moderate drop in mortgage rates, as indicated by the dotted lines. Here are two key reasons why this is beneficial for both buyers and sellers:

1. It Helps Alleviate the Lock-In Effect

For homeowners, lower mortgage rates might make it easier to overcome the lock-in effect. This happens when people feel trapped in their current home because the rates today are higher than the ones they secured when they bought their house.

If the worry about losing your low-rate mortgage and dealing with higher costs has kept you from selling, a small dip in interest rates might make it a bit more appealing to consider. Still, we shouldn’t expect a surge of sellers jumping in, since many homeowners are likely to remain cautious about parting with their current mortgage rates.

2. It Should Boost Buyer Activity

If you're looking to buy a home, a drop in mortgage rates can really make the housing market feel more inviting. When rates go down, it can lower the

What Should You Do?

A cut in the Federal Funds Rate may not drastically lower mortgage rates, but it’s likely to help with the gradual decline we’re already seeing.

The expected rate cut is a positive development for the future of the housing market, but it’s crucial to explore your options now. Jacob Channel, Senior Economist at LendingTree, expresses this idea clearly.

““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.”
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— Jacob Channel, Senior Economist at LendingTree

Bottom Line

The anticipated cut to the Federal Funds Rate, thanks to improving inflation and slower job growth, is expected to slowly bring mortgage rates down. This could create new opportunities for you. When you feel ready, let's get in touch so you can be prepared to make your move when the time suits you.