Housing News

A Fed Rate Cut Looks Likely Next Month. That Could Give the Housing Market a Boost

The odds of interest rates falling later this year just improved.

The U.S. Federal Reserve is expected to cut its federal funds rate during its September meeting. This comes after inflation data came in lower than anticipated, giving the Fed the ammunition it may need to lower rates.

The Fed is now expected to cut rates two, or even three, times this year. That could be good news for those hoping to see mortgage rates decline.

“The fact that overall inflation did not increase in July suggests that the Fed will cut rates in September, probably by a quarter of a percentage point,” said Bright MLS Chief Economist Lisa Sturtevant in a statement. The multiple listing service covers the mid-Atlantic region.

While mortgage rates are separate from the Fed’s rates, the two generally move in the same direction. So, if the Fed brings its rates down, mortgage rates are likely to follow.  

Mortgage interest rates averaged 6.63% for 30-year, fixed-rate loans in the week ending Aug. 7, according to the most recent Freddie Mac data.

The Fed is charged with keeping inflation in check while maintaining maximum employment. Despite pressure from President Donald Trump, the committee had been keeping rates high while the impact of the president’s tariffs works its way through the economy.

However, inflation didn’t rise as much as anticipated in July, according to the Consumer Price Index released on Tuesday. Inflation was running at 2.7%, according to the U.S. Bureau of Labor Statistics. While that’s still higher than the Fed’s 2% goal, inflation held steady from last month.

Combined with weaker labor market data released earlier this month, experts expect the Fed to bring down rates next month.

This would be the first rate cut since December of last year.

However, there’s no guarantee of an interest rate decrease next month.

“The Federal Reserve may keep the door open to rate cuts later this year, but will likely want firmer evidence that tariff and labor-related costs aren’t feeding into broader, persistent inflation,” First American Senior Economist Sam Williamson said in a statement.

And while mortgage rates are likely to fall, they could remain higher than many homebuyers would prefer, especially if inflation proves to be sticky.

High mortgage rates plus elevated home prices have made the housing market unaffordable for many would-be homebuyers. Even small decreases in rates could make monthly mortgage payments more affordable for buyers.

But if rates dropped and more buyers jumped into the market, prices are likely to rise. That could erase potential savings.

However, lower rates could be advantageous for those who bought a home in the last few years when rates were higher. They may be able to refinance into a lower mortgage rate and payment.

“Prospective homebuyers who have been waiting for mortgage rates to come down may continue to be disappointed,” said Sturtevant. “As we head into fall, more and more would-be buyers are going to decide to hold off and push their home buying out to 2026 when the economy may be more certain, inflation may come down, and rates may be lower.”