The Federal Reserve Board meeting was held this week. As expected the Fed dropped rates by a quarter point. However, it was what they said after the meeting that affected mortgage interest rates.
In September, the Fed starting dropping rates and at that time, it was expected that there would be four quarter point cuts in 2025. After the economic reports this fall, the Fed has now changed that as of this meeting. Now they are expecting to see two rate cuts in 2025. Of the 19 officials in the Fed, 14 of them projected two quarter point rate cuts or less. Five members projected more than two rate cuts. This means that the current Fed rate is 4.25-4.5%, this is the rate that banks borrow at, not what mortgage rates are at. Over the next two years, the Fed does see rates dropping more, but it will take time. If we start to see worsening employment or lower inflation, this could change.
So what does the rate cut mean to you? It will not affect mortgage rates and based on the reaction of the bond market, mortgage rates will actually increase today. We saw our mortgage rates reprice worse on Wednesday. But if you have a home equity loan, your interest rate may drop by .25 point! The rate cut will also help credit card and car loan interest rates.
Fannie Mae forecasts mortgage rates staying above 6% for 2025 because of inflation and employment reports. They also expect existing home sales to improve slightly but that they will remain near 30 year lows due to affordability issues and so many homeowners not selling due to their own low interest rates.
As we enter 2025, the Fed will be watching economic reports and will make adjustments to the interest rates based on those reports. They want to make sure inflation is continuing to improve and if risks emerge, they will adjust their monetary policy as appropriate.
What does this mean to you as a homebuyer? We may not see rates drop as much as people were hoping. As many of us have said, if you find a home you want to buy, don’t let mortgage rates stop you. Work with your lender to get the best program and rate for you. It may mean asking the seller to pay for some closing costs and doing a 2/1 buydown to help lower the rate for the first two years. Or using the money from the seller to buy points to lower your rate. Then when rates do come down, you can look at refinancing your mortgage. We expect rates to drop over the next two years but it does depend on what happens in the economy.
Leslie Vanderwerf, NMLS ID#335509, CrossCountry Mortgage LLC, An Equal Housing Lender, NMLS#3029 – Email – Website
