September Fed Meeting: What Lower Rates Mean for Homebuyers and Sellers

Now that September is here, all eyes are on the Federal Reserve (the Fed). The general expectation is that they’ll lower the Federal Funds Rate at their upcoming meeting. This is largely due to signs that inflation is cooling, and the job market is slowing down. As 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 influences mortgage rates—but it’s not the only factor. The broader economy, geopolitical events, and more also play a role. When the Fed cuts the rate, it signals what’s happening in the economy, and mortgage rates tend to respond accordingly. While a single rate cut might not lead to a dramatic drop in mortgage rates, it contributes to the gradual decline that we’re already seeing.

Mike Fratantoni, Chief Economist at the Mortgage Bankers Association (MBA), noted, “Once the Fed kicks off a rate-cutting cycle, we do expect that mortgage rates will move somewhat lower.” The good news? These cuts are not expected to be one-time events. According to Lawrence Yun, Chief Economist at the National Association of Realtors (NAR), “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 industry experts project for mortgage rates through 2025. One contributing factor to this ongoing gradual decline is the expected rate cuts from the Fed. The graph below reflects the latest forecasts from Fannie Mae, MBA, NAR, and Wells Fargo, showing a steady drop in mortgage rates (dotted lines).

With recent improvements in inflation and signs that the job market is cooling, a Federal Funds Rate cut is likely to result in a moderate decline in mortgage rates over time. This is welcome news for both buyers and sellers.

Two Big Benefits of Lower Mortgage Rates

Easing the Lock-In Effect for Sellers
Lower mortgage rates could help current homeowners who have been hesitant to sell their homes. Many feel “locked in” because the mortgage rates they secured when buying their current home are much lower than today’s rates. A slight reduction in mortgage rates could make selling more attractive for those worried about higher borrowing costs.
While this may not lead to a flood of sellers, it could encourage more homeowners to list their properties, leading to a healthier market overall.
Boosting Buyer Activity
For potential homebuyers, a drop in mortgage rates means a more affordable housing market. Lower mortgage ratesreduce monthly payments, making homeownership more achievable for buyers who have been waiting for better conditions. Any upcoming rate cuts will likely increase buyer demand, making the housing market more competitive.

What Should You Do?

While a Federal Funds Rate cut is not expected to lead to a drastic drop in mortgage rates, it will contribute to the gradual decrease we’re already seeing. The anticipated rate cut represents a positive shift for the future of the housing market, but it’s important to consider your options right now. Jacob Channel, Senior Economist at LendingTree, advises, “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. This will benefit both homebuyers and sellers. If you’re ready to take advantage of these opportunities, let’s connect so you can be prepared when the time is right for you.

Karen Manzanares

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