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The Federal Reserve gave home shoppers what they hoped for this week: a big rate cut and a signal of more cuts to come.
Even so, aspiring homebuyers and homeowners eager to refinance should temper their expectations of a big drop in mortgage rates from here.
While the Fed doesn’t set mortgage rates, its policy pivot does clear a path for mortgage rates to go lower. But in this case, the Fed’s action was widely anticipated, so rates moved lower well before the cut was even announced.
“We’ve seen the bulk of the easing that we’re going to get already this year,” says Danielle Hale, chief economist at Realtor.com. “I wouldn’t be entirely surprised if mortgage rates ticked up a bit from here before declining again.”
While lower rates give home shoppers more purchasing power, a mortgage around 6% is still not low enough for many Americans struggling to afford a home. That’s mostly because home prices have soared 49% over the past five years, roughly double the growth in wages. They remain near record highs, propped up by a shortage of homes in many markets.
Mortgage rates would have to drop back to near rock-bottom lows from three years ago, or home prices would have to fall sharply for many buyers to afford a home. Neither scenario is likely to happen any time soon.
Economists and mortgage industry executives expect mortgage rates to remain near their current levels, at least this year. Fannie Mae this week projected the rate on a 30-year mortgage will average 6.2% in the October-December quarter and decline to an average of 5.7% in the same quarter next year. It averaged 7.3% in the same period in 2023.
