How the Federal Reserve’s Next Move Could Impact the Housing Market
How the Federal Reserve's Upcoming Decision Could Affect the Housing Market: What Homebuyers and Sellers Need to Know
As we enter September, attention is turning to the Federal Reserve (Fed).
Many expect a cut to the Federal Funds Rate in their upcoming meeting, driven by cooling inflation and a slowing job market.
According to Mark Zandi, Chief Economist at Moody’s Analytics:
“They’re ready to cut, as long as there’s no inflation surprise between now and September, which there won’t be.”
But what does this mean for the housing market, and more importantly, for you as a buyer or seller?
Why a Federal Funds Rate Cut Matters
The Federal Funds Rate is a key factor influencing mortgage rates, though other aspects like the economy and global uncertainty also play a role.
When the Fed cuts the Federal Funds Rate, it signals shifts in the broader economy, and mortgage rates typically follow.
While a single rate cut may not cause a sharp decline in mortgage rates, it contributes to the gradual downward trend we’re seeing.
As Mike Fratantoni, Chief Economist at the Mortgage Bankers Association (MBA), explains:
“Once the Fed starts cutting rates, we expect mortgage rates to move somewhat lower.”
Additionally, Lawrence Yun, Chief Economist at the National Association of Realtors (NAR), notes:
“The rate-cutting cycle is rarely one-and-done. We’re looking at six to eight cuts through 2025.”
How Will This Impact Mortgage Rates?
Industry experts project continued gradual declines in mortgage rates through 2025, with Federal Funds Rate cuts playing a key role. Here’s what to expect:
1. Alleviating the Lock-In Effect
For current homeowners, lower mortgage rates could ease the lock-in effect, where homeowners feel stuck in their current homes due to higher rates compared to their existing mortgage.
A modest rate reduction could make selling more appealing, although most won’t rush to sell just yet.
2. Boosting Buyer Activity
For homebuyers, even a slight drop in mortgage rates can make homeownership more affordable, opening up more opportunities if you’ve been waiting for the right time to move.
What Should You Do?
While a Federal Funds Rate cut may not lead to drastically lower mortgage rates, it’s likely to contribute to the gradual decrease already underway.
This could present valuable opportunities for both buyers and sellers. As Jacob Channel, Senior Economist at LendingTree, advises:
“Timing the market is impossible. If you’re waiting for perfect conditions, you’ll be waiting forever. Buy now if it’s the right decision for you.”
Bottom Line
The expected Federal Funds Rate cut, driven by improving inflation and slower job growth, will likely have a gradual but positive impact on mortgage rates.
If you’re considering buying or selling, let’s connect to discuss your options and help you take advantage of the market shift when the time is right for you.
