Housing News

Homebuyers and Homeowners Rejoice: The Fed Just Cut Interest Rates

The housing market just got a big break.

The U.S. Federal Reserve cut interest rates a quarter of a percentage point on Wednesday, much to the delight of many homebuyers and homeowners. This is the first reduction to the Fed’s benchmark rate in nine months.

This move had been expected for some time now, with mortgage interest rates steadily dropping in advance of the Fed’s meeting. Mortgage rates are separate from the Federal Funds rate. However, they are influenced by the Fed’s decisions. If the Fed is expected to lower rates, mortgage rates generally come down.

“The Fed lowering rates over the next year should give buyers confidence that the Fed is willing to step in to support the economy,” said New American Funding Chief Investment Officer Jason Obradovich. “Lower interest rates will benefit homebuyers and homeowners.”

Mortgage rates fell to roughly their lowest levels in a year on Tuesday in anticipation of the Fed cut. Rates dropped to an average 6.13% for 30-year, fixed-rate loans, according to Mortgage News Daily.

That was a drop from a high this year of 7.26% on Jan. 13, according to Mortgage News Daily. They’re also down nearly half a percentage point from a month earlier, when rates averaged 6.59% on Aug 18.

Lower rates can translate into big savings for homebuyers, who may be able to increase their purchasing power or lower their monthly housing payments. Homeowners may also be able to save money each month by refinancing and locking in a lower rate.

The financial markets expect the Fed to lower rates three more times this year, once at each subsequent monthly meeting. That could put increased downward pressure on rates.

However, Obradovich isn’t so sure.

“If there are only two moves this year, we actually could see mortgage rates move up instead of down,” he said.

Last year, mortgage rates came down before the Fed made its first rate cut of 2024. Then they rose sharply, even though the Fed continued to lower rates twice more that year.

This means mortgage rates could be volatile. Homebuyers and homeowners may want to lock in lower rates to protect against a potential rise.

“Since inflation is still not certainly contained, the Fed will move lower in rates—but slowly until more data is available,” said Obradovich. “That could mean rates pop up a bit.”