Mortgage Rate Predictions: Will Another Fed Rate Cut Make a Difference?
mortgage interest rate Hitting its lowest level since late October last week could be the Fed’s swan song. cut interest rates.
At its final policy meeting of the year on December 17-18, the Fed is expected to The benchmark interest rate was lowered by 0.25 percentage pointsthis is the third interest rate cut in 2024. However, potential homebuyers shouldn’t expect mortgage rates to suddenly drop by the same amount. While mortgage rates are affected by the Federal Reserve’s actions, they more closely monitor movements in the bond market.
“Mortgage rates often fluctuate,” he said Jacob ChannelSenior Economist at LendingTree. “We’ll need more time to determine whether the recent decline in mortgage rates signals a longer-term trend or whether it’s just a blip,” Channel said.
Expectations for a sharp rate cut next year have dimmed recently amid uncertainty over President-elect Donald Trump’s policies. tax and tariff proposals will reignite inflation or throw the economy out of balance. Channel told CNET that the Fed may delay further interest rate cuts until March or later, depending on how the economy performs in the early days of the new administration.
While nothing is set in stone, experts say Wednesday’s rate cut could be the last for a while. mortgage interest rate A decline could still occur in 2025 if economic data weakens and the Fed continues to cut interest rates. But as things stand, that’s a pretty big “if.”
Read more: 2025 Mortgage Forecast: Return to low rates unlikely under Trump
The Federal Reserve, Inflation, and Mortgage Rates
The central bank has two main goals: maintaining maximum employment and containing inflation. it depends on inflation and laboratory dataIt is a barometer of the health of the economy when deciding whether to raise or lower short-term benchmark interest rates.
When inflation peaks in 2022, mortgage rates soar as the Fed raises interest rates to reduce demand and limit price growth. Fed Shift to rate cuts Earlier this fall, data showed cooling inflation and a slowing job market.
Recent inflation data shows rising prices 2.7% November’s annual rate cut was not strong enough to prevent the Fed from cutting rates this week. But it does set off a wake-up call: Progress has stalled, if not stopped entirely, in bringing inflation down to the Fed’s annual target of 2%.
At the same time, the labor market has not experienced any major disruptions. While the Fed wants to avoid lending rates too high, this could plunge the economy into recession – It also worries that cutting interest rates too quickly will only cause inflation to rise again.
Where mortgage rates will go in 2025
With inflation remaining above target and job growth strong, bond market investors now expect smaller Fed rate cuts and higher long-term rates, which are likely to continue Upward pressure on mortgage rates.
“Mortgage rates will be affected by the bond market, which also responds to inflation and other economic data,” he said. Melissa CohenWilliam Raveis Mortgage Regional Vice President. “If the economy continues to be on solid footing, then we likely won’t see a small decrease in mortgage rates.”
Although experts optimistically predicted that interest rates would fall by nearly 6% by the end of 2024, the forecasts have already changed significantly. Fannie Mae Now expected average 30-Year Fixed Mortgage Rate It will remain above 6.5% by the beginning of 2025.
Experts agree that mortgage rates will only fall in 2025 if the economy weakens. This means housing affordability will remain largely unchanged in the short term.
What else is happening in the housing market?
Today’s unaffordable housing market The result of high mortgage rates chronic housing shortageexpensive housing prices and loss of purchasing power due to inflation.
🏠 Low housing inventory: A balanced housing market typically has five to six months of supply. The average volume in most markets today is about half that number. Although we see a surge in new construction in 2022, according to Zillowe are still short of about 4.5 million housing units.
🏠 Increase your mortgage Rate: In early 2022, mortgage rates were near historic lows around 3%. Mortgage rates roughly doubled in a year as inflation soared and the Federal Reserve began raising interest rates to curb it. Mortgage rates remain high through 2024, effectively squeezing millions of potential buyers out of the housing market. that is leading to slowdown in home saleseven during typically busy months for home buying, like spring and early summer.
🏠 Rate locking effect: Because most owners are Lock in your mortgage rate Below 6%, and some as low as 2% and 3%, they are reluctant to sell their current home because it means buying a new home with a significantly higher mortgage rate. Until mortgage rates drop below 6%, homeowners have little incentive to list their homes, leading to a dearth of resale inventory.
🏠High housing prices: Although demand for home purchases has been limited in recent years, home prices remain high due to a lack of inventory. The median home price in the United States is $434,568 Data from Redfin showed year-over-year growth of 5.1% in September.
🏠 Inflation is serious: Inflation increases the cost of basic goods and services, reducing our purchasing power. It also affects mortgage rates: When inflation is high, lenders often set consumer loan rates to compensate for the loss of purchasing power and ensure profits.
Experts offer advice to home buyers
Rushing is never a good idea buy a house Without knowing what you can afford, create a clear budget for your home purchase. Here’s what experts recommend before buying a home:
💰 Build your credit score. Your credit score is one of the main factors lenders consider when determining whether you qualify for a mortgage and what the interest rate will be. dedicated to credit score 740 or higher will help you qualify for lower rates.
💰 Save more down payment. bigger down payment Will allow you to get a smaller mortgage and get a lower interest rate from the lender. If you can afford it, putting down at least 20% can also eliminate the need for private mortgage insurance.
💰 Shop around for a mortgage lender. Comparing loan quotes from multiple mortgage lenders can help you Negotiate a better price. Experts recommend getting at least two to three loan estimates from different lenders before making a decision.
💰 Consider the rent vs. purchase equation. choose Rent or buy a house Don’t just compare your monthly rent to your mortgage payment. Renting offers flexibility and lowers upfront costs, but buying allows you to build wealth and have more control over housing costs. The best option depends on your financial situation, lifestyle and how long you plan to stay in a place.
💰 Consider mortgage points. One way to get a lower mortgage rate is to use mortgage points. One mortgage point is equivalent to a 0.25% decrease in the mortgage interest rate. Typically, the fee per point is 1% of the total loan amount.
