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With Fed rates keep calm Over the past two years, mortgage interest rates have remained generally high, even hovering around 1.5%. almost 8% at some point recently. And these high interest rates on mortgages, coupled with the high cost of living and inflationhave led many potential buyers to interrupt their search for a home and a mortgage to purchase it.
But in recent weeks, there has been some good news for potential home buyers. Inflation has slowed slightly — and mortgage rates fell to its lowest level in four months in tandem. A Fed rate cut is also likely for September, which would lead lower mortgage interest rates even more.
But how would a Fed rate cut impact mortgage rates? If you’re ready to buy a home, here’s how much lower you can expect mortgage rates to be after the Fed cuts rates.
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How Far Will Mortgage Rates Fall After Fed Rate Cut? Experts Weigh In
Although a Fed rate cut is expected in the coming months, experts say the next Mortgage Rates Drop may not be as large as many potential buyers would like.
“Based on my more than decade of experience in mortgage lending, I expect the Fed to cut rates by 0.25% in September,” said Phil Galante, a mortgage broker at ProMortgage. “I don’t expect a dramatic drop in mortgage rates if the Fed cuts rates by 0.25%.”
This is partly due to the recent drop in mortgage rates. current mortgage rates Prices are not as low as they were in the early years of the pandemic, but they are already down from their recent highs. These declines are due, in large part, to the Fed’s anticipated rate cuts on the horizon.
“We’ve already seen some of the benefits of a future rate cut on current mortgage rates,” said Melissa Cohn, regional vice president at William Raveis Mortgage. “However, a rate cut by the Fed will reflect weakening economic conditions, which should push bond yields and mortgage rates lower as well.”
Michael Isaacs, CEO of GO Mortgage, doesn’t expect a significant decline after the Fed cuts rates because we’ve already seen mortgage rates decline. On the other hand, we shouldn’t expect a significant decline in rates, Isaacs says, but even a slight decline. could encourage some potential home buyers to start searching.
Cohn agrees that deeper mortgage rate cuts could come next year — and won’t necessarily happen by year’s end.
“The Fed’s first rate cut may have little or no impact on mortgage rates,” Cohn says. “If the Fed continues to cut rates through 2025 and the economy remains at a slower pace with inflation closer to 2%, then [it’s] It is possible that rates could fall by 1 to 1.5% over the next 18 months. All this provided that inflation remains low.
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Why the Fed’s Rate Cut Impacts Mortgage Rates
Mortgage rates are not directly tied to the Fed rate; many factors influence them. However, when the Fed makes changes, mortgage rates tend to follow.
“When the economy is weak and unemployment [is] “When inflation is high, as it was at the beginning of the COVID pandemic, the Fed stimulates the economy by lowering the federal funds rate and loosening the nation’s money supply. That puts more money into circulation,” Galante says. “When the economy is booming and inflation is high, the Fed tightens the nation’s money supply by raising the federal funds rate, and banks charge each other more for short-term loans. Lenders, in turn, pass those costs on to the consumer by raising rates on longer-term loans like mortgages.”
That’s why mortgage rates could start to fall after the Fed cuts rates, which would be beneficial for those trying to buy a home, says Alex Elezaj, chief strategy officer at United Wholesale Mortgage (UWM).
“Lower mortgage rates could further stimulate the housing market and encourage potential buyers who have been on the sidelines to enter the market,” Elezaj says. “The momentum has been significant and we expect it to continue.”
The essential
A slight drop in mortgage rates could come after the Fed cuts rates, experts say, but it’s important to remember that mortgage rates have already started to fall.
“Mortgage rates have been gradually coming down over the last four months,” Galante says. “In anticipation of the Fed’s rate cut, lenders have already been slashing their mortgage prices.”
And even though rates have gradually come down, home prices have not come down with them. Demand for single-family homes continues despite today’s high mortgage rates, and a rate cut could only increase that demand.
“The dramatic increase in mortgage rates since 2022 has not led to such a dramatic decline in home prices despite a substantial decline in home purchases, because demand for single-family homes far exceeds supply,” Galante says. “A decline in interest rates will most likely increase competition for housing and drive home prices up further.”
