The Fed’s Rate Cuts May Bring Unintended Effects to the Housing Market

 

**The Federal Reserve Cuts Interest Rates for the First Time in Four Years—But Don’t Expect Mortgage Rates to Plunge**

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On Wednesday, the Federal Reserve announced a 50-basis-point cut to its benchmark interest rate, marking its first rate cut in four years as it aims to shift towards a more neutral monetary policy stance. While many in the real estate industry have blamed high mortgage rates for making home buying increasingly unaffordable, economists caution that the recent cut may not lead to a significant drop in mortgage rates.

Mortgage rates, which had surged from a record low of 3% to nearly 8% last year, have already been trending downwards in anticipation of the Fed’s move. Given that markets had largely priced in this rate cut, the central bank's announcement is unlikely to cause a dramatic shift in mortgage rates.

“Mortgage rates likely had this cut—and the expected rate path—priced in, resulting in lower rates close to 6%, which have spurred more refinancing and some additional purchase activity in recent weeks,” said Mike Fratantoni, chief economist at the Mortgage Bankers Association.

As of the week ending September 13, the average contract rate for a 30-year mortgage was 6.15%, down from 6.29% the previous week, according to the MBA, marking the lowest rate since September 2022. 

Lisa Sturtevant, chief economist at Bright MLS, noted that while many buyers and sellers are closely watching the Fed for a major drop in mortgage rates, the current cut has already been factored in. “Rates on the 30-year fixed-rate mortgage have been falling since early July, so it would be surprising to see a substantial drop this week,” she said.

Some experts believe rates could edge slightly lower in the coming weeks. Eric Orenstein, senior director at Fitch Ratings, said, “The Fed’s 50-basis-point rate cut adds downward momentum for mortgage rates, which have already declined significantly as Treasuries have rallied since May.”

Fannie Mae forecasts that the 30-year mortgage rate will average 5.7% by the end of 2025. Ralph McLaughlin, a senior economist at Realtor.com, suggests rates could hover between 6% and 6.2% for the remainder of the year and potentially dip into the high-5% range by next spring. “As rates fall, we should initially see increased activity in the refinancing market, followed by higher mortgage application activity as both buyers and sellers ramp up for the spring buying season,” McLaughlin said.

However, home prices are expected to continue rising. “As mortgage rates fall, buying power increases, which could drive home price growth to reaccelerate, especially if inventory remains slow to respond,” McLaughlin added.