How the Federal Reserve’s Next Move Could Impact the Housing Market

Now that it's September, all eyes are on the Federal Reserve (the Fed). The overwhelming expectation is that they'll cut the Federal Funds Rate at their

upcoming meeting, driven primarily by recent signs that inflation is cooling, and the job market is slowing down. Mark Zandi, Chief Economist at Moody's

Analytics, said:

“They’re ready to cut, just as long as we don’t get an inflation surprise between now and September, which we won’t.”

But what does this mean for the housing market, and more importantly, for you as a potential homebuyer or seller?

Why a Federal Funds Rate Cut Matters

The Federal Funds Rate is one of the key factors that influences mortgage rates - things like the economy, geopolitical uncertainty, and more also have an

impact.

When the Fed cuts the Federal Funds Rate, it signals what's happening in the broader economy, and mortgage rates tend to respond. While a single rate cut

might not lead to a dramatic drop in mortgage rates, it could contribute to the gradual decline that's already happening.

As Mike Fratantoni, Chief Economist at the Mortgage Bankers Association (MBA), points out:

"Once the Fed kicks off a rate-cutting cycle, we do expect that mortgage rates will move somewhat lower."

And any upcoming Federal Funds Rate cut likely won't be a one-time event. Lawrence Yun, Chief Economist at the National Association of

Realtors (NAR), says:

“Generally, the rate-cutting cycle is not one-and-done. Six to eight rounds of rate cuts all through 2025 look likely.”

The Projected Impact on Mortgage Rates

Here's what experts in the industry project for mortgage rates through 2025. One contributing factor to this ongoing gradual decline is the anticipated cuts from

the Fed. The graph below shows the latest forecasts from Fannie Mae, MBA, NAR, and Wells Fargo (see graph below):

So, with recent improvements in inflation and signs of a cooling job market, a Federal Funds Rate cut is likely to lead to a moderate decline in mortgage rates

(shown in the dotted lines). Here are two big reasons why that's good news for both buyers and sellers:

1. It Helps Alleviate the Lock-In Effect

For current homeowners, lower mortgage rates could help ease the lock-in effect. That's where people feel stuck within their current home because today's rates

are higher than what they locked in when they bought their current house.

If the fear of losing your low-rate mortgage and facing higher costs has kept you out of the market, a slight reduction in rates could make selling a bit more

attractive again. However, this isn't expected to bring a flood of sellers to the market, as many homeowners may still be cautious about giving up their existing

mortgage rate.

2. It Should Boost Buyer Activity

For potential homebuyers, any drop in mortgage rates will provide a more inviting housing market. Lower mortgage rates can reduce the overall cost of

homeownership, making it more feasible for you if you've been waiting to make a move.

What Should You Do?

While a Federal Funds Rate cut is not expected to lead to drastically lower mortgage rates, it will likely contribute to the gradual decrease that's already

happening.

And while the anticipated rate cut represents a positive shift for the future of the housing market, it's important to consider your options right now. Jacob

Channel, Senior Economist at Lending Tree, sums it up well:

“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.”

Bottom Line

The expected Federal Funds Rate cut, driven by improving inflation and slower job growth, is likely to have a positive, though gradual, impact on mortgage rates.

That could help unlock opportunities for you. When you're ready, let's connect. That way you'll be prepared to take action when the time is right for you.

“Mortgage rates have been revised slightly lower as signals from the economy suggest that it will be appropriate for the Fed to begin to cut its Federal Funds rate in 2024. Our yearly mortgage rate average forecast is down to 6.7%, and we revised our year-end forecast to 6.3% from 6.5%.”

Know Your Number for Mortgage Rates

So, what does this mean for you and your plans to move? If you've been holding out and waiting for rates to come down, know that it's already happening. You

just have to decide, based on the expert projections and your own budget, when you'll be willing to jump back in. As Sam Khater, Chief Economist at Freddie

Mac, says:

“The decline in mortgage rates does increase prospective homebuyers’ purchasing power and should begin to pique their interest in making a move.”

As a next step, ask yourself this: what number do I want to see rates hit before I'm ready to move?

Maybe its 6.25%. Maybe it's 6.0%. Or maybe it's once they hit 5.99%. The exact percentage where you feel comfortable kicking off your search again is

personal. Once you have that number in mind, you don't need to follow rates yourself and wait for it to become a reality.

Instead, connect with a local real estate professional. They'll help you stay up to date on what's happening and have a conversation about when to make your

move. And once rates hit your target, they'll be the first to let you know.

Bottom Line

If you've put your moving plans on hold because of higher mortgage rates, think about the number you want to see rates hit that would make you re-enter the

market.

Once you have that number in mind, let's connect so you have someone on your side to let you know when we get there.