Housing News

Hold On Homebuyers: Mortgage Rates Could Tumble This Fall

Aspiring homebuyers priced out of the housing market shouldn’t lose hope. Mortgage rates could be heading lower.

The U.S. Federal Reserve held its interest rates steady at its July meeting. But the Fed is widely expected to make its first rate cut in September if inflation continues to cool. That would be likely to exert downward pressure on mortgage rates.

Mortgage rates are not the same as the Fed’s short-term interest rates, but they often move in the same direction. So, when the Fed signals it will lower rates, mortgage rates may dip.

That could be the nudge that many cost-conscious homebuyers need to jump back into the pricey housing market. 

“This could be the beginning of the end of high rates,” said New American Funding Chief Investment Officer Jason Obradovich.

Federal Reserve Chair Jerome Powell said at a press conference on Wednesday that he could see the Fed making no rate cuts—or several this year.

“We’re getting closer to the point at which it would be appropriate to reduce our policy rate, but we’re not quite there yet,” Powell said. However, if inflation, the labor market, and the economy continue to cool, “I would think a rate cut could be on the table at the September meeting.”

The Fed’s goal has been to bring down inflation and slow the economy. The most recent economic data shows the Fed’s plan of raising rates and keeping them high appears to be working.

Mortgage rates have already come down a little in anticipation of the Fed’s cuts.

They averaged 6.78% for 30-year, fixed-rate loans in the week ending July 25, according to Freddie Mac data. That was down about a full percentage point from 7.79% in late October of 2023.

Mortgage rates slid a little after June's inflation report released by the Bureau of Labor Statistics. It showed that inflation was slowing, to 3% year-over-year, moving closer to the Fed’s 2% target.

Unemployment also rose in June, ticking up to 4.1%, according to the U.S. Bureau of Labor Statistics.

This may give the Fed the confidence to lower rates in September and maybe even once or twice more this year.

“If inflation continues to come down at the current pace and unemployment continues to rise at the current pace, there is a very high probability the Fed will lower rates two or three times by the end of the year,” said New American Funding’s Obradovich. 

The danger for homebuyers with limited budgets is that when rates fall, more folks could jump into the market and bid up home prices.

However, the rate drops may not be big enough to make homeowners want to give up the low mortgage rates they locked in over the last few years and list their homes. That could keep the number of properties for sale low.

“A decline in mortgage rates may boost demand more than supply,” said First American Deputy Chief Economist Odeta Kushi in a statement. “Even if mortgages rates fall gradually through the remainder of this year, they are unlikely to fall enough to ‘unlock’ the majority of homeowners.”