As we move through September, all eyes are on the Federal Reserve (the Fed) and their anticipated decision to cut the Federal Funds Rate. This expectation stems from signs that inflation is cooling and the job market is slowing. According to Mark Zandi, Chief Economist at Moody’s Analytics:

“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 a rate cut mean for the housing market, and more importantly, how might it affect you as a potential buyer or seller?

Why a Federal Funds Rate Cut Matters

The Federal Funds Rate is a key factor that influences mortgage rates, along with other elements like economic conditions and global events. When the Fed lowers this rate, it often reflects broader economic shifts, and mortgage rates tend to follow suit. While a single rate cut may not result in a significant drop in mortgage rates, it can support the ongoing gradual decline we’ve been seeing.

As Mike Fratantoni, Chief Economist at the Mortgage Bankers Association (MBA), explains:

“Once the Fed kicks off a rate-cutting cycle, we do expect that mortgage rates will move somewhat lower.”

This upcoming rate cut likely won’t be a one-off event. Lawrence Yun, Chief Economist at the National Association of Realtors (NAR), predicts:

“Generally, the rate-cutting cycle is not one-and-done. Six to eight rounds of rate cuts all through 2025 look likely.”

The Impact on Mortgage Rates

Industry experts are projecting a moderate decline in mortgage rates through 2025, largely influenced by the Fed's anticipated rate cuts. The graph below shows forecasts from Fannie Mae, MBA, NAR, and Wells Fargo (see graph below):

With improvements in inflation and a cooling job market, these rate cuts are expected to contribute to a gradual dip in mortgage rates (as shown by the dotted lines). This is positive news for both buyers and sellers for two key reasons:

1. Easing the Lock-In Effect

Many current homeowners feel stuck due to the “lock-in effect,” where the fear of losing their lower, locked-in mortgage rates discourages them from selling. A slight reduction in mortgage rates could make the prospect of selling a bit more appealing, even if it doesn’t bring a massive wave of new listings to the market.

2. Boosting Buyer Activity

For potential homebuyers, lower mortgage rates mean reduced costs of homeownership, making the market more accessible. If you've been waiting for more favorable conditions to buy, a decline in rates could offer the opportunity you’ve been looking for.

What Should You Do?

Although a Federal Funds Rate cut may not drastically lower mortgage rates overnight, it will likely contribute to the steady downward trend we’re already seeing. This shift presents an encouraging outlook for the housing market, but as 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 anticipated Federal Funds Rate cut, fueled by improvements in inflation and a slower job market, is expected to have a gradual, positive impact on mortgage rates. Whether you're buying or selling, understanding these changes can help you seize the right opportunities. Let’s connect to ensure you’re ready to make informed decisions when the time is right for you.