Valentinrussanov | E+ | Getty Images
Federal Reserve is preparing to make its first interest rate cut in years this fall, which could impact Mortgage prices will go down.
Even small cuts in interest rates can make a meaningful difference in the amount a homebuyer pays. By then, those in the home buying market had been eagerly awaiting the central bank to cut interest rates.
The Fed meets this week, but experts say it looks like the first rate cut will come in September. That would be the first rate cut since 2020 when the Covid-19 pandemic broke out.
While there is less than a 6% chance of a rate cut at the upcoming Federal Open Market Committee meeting, according to CME FedWatch The futures market gauge shows a high probability of a 0.25 percentage point cut in September, November and December.
With further cuts in 2025, the Fed’s benchmark interest rate will fall below 4% by the end of next year, according to some experts.
While mortgage rates are fixed and largely tied to Treasury yields and the economy, they are influenced in part by Fed policy. Mortgage rates have begun to fall, in part because of the Fed’s taper.
Here’s what homeowners and buyers need to know.
The rate cut has been priced into the market.
Chen Zhao, head of economic research at Redfin, an online real estate brokerage, said the first rate cut has been almost fully priced into financial markets, especially the bond market. In other words, mortgage rates won’t change much when the Fed actually starts cutting, she said.
“Multiple rate cuts are on the table,” she said.
The 30-year fixed mortgage rate fell to 6.78% on July 25, down from 7.22% on May 2, according to Freddie Mac data via the Fed.
Refinance now or later?
“Refinancing activity is starting to pick up, not a big wave yet, but it’s starting to pick up a little bit as rates start to come down,” Zhao said.
Refinancing activities for existing home loans rose 15% from the previous week, reaching its highest level since August 2022, according to for the Mortgage Bankers Association. The MBA found that figure was up 37% from a year ago.
Whether homeowners should refinance depends in part on their current interest rates, said Selma Hepp, chief economist at CoreLogic.
“There are people who started when mortgage rates peaked at 8% last fall,” Hepp said. For those buyers, “there are some opportunities there.”
More from Personal Finance:
Home insurance premiums rose 21% last year
How to Know If You’re in a Homebuyer-Friendly Market
1 million people now owe more than $200,000 in federal student loans
To “have money”, or when it makes sense to refinancingExperts say homeowners need to see a significant drop in mortgage rates to benefit. Current rates must be at least 50 basis points lower than your current rate. A basis point is one-hundredth of a percentage point.
While that can be a good strategy, it’s not a “hard and fast rule,” said Jacob Channel, senior economist at LendingTree.
“The timing of refinancing your home will depend on factors like your monthly mortgage payment and whether you can afford the closing costs,” he says. “There’s a lot of variability.” (When you refinancing When you get a mortgage, you may incur closing costs, as well as appraisal fees and title insurance; the total price will depend on your area.)
“The savings should be greater than your upfront costs,” Zhao explains.
Even if your current mortgage has a high interest rate, you should still consider waiting until the central bank continues to cut rates, with expectations of a steady decline throughout the year and into 2025, Zhao said.
If you’re considering this, Channel says to reach out to lenders and see if refinancing now or in the near future makes more sense for you.
Buy now or buy later?
While lower interest rates may be a relief for budget-conscious homebuyers, the actual impact of lower borrowing costs remains unclear, according to Zhao.
For example, if the cost of borrowing to buy a home falls, more buyers are likely to jump into the market. And if demand outstrips supply, prices could rise even higher, she said. That could “offset the relief you get from mortgage rates.”
But Channel said what will happen in the housing market “remains unclear” depending on how much mortgage rates fall in the second half of the year and the level of supply.
“Market timing is basically impossible,” Channel said. “If you wait for perfect market conditions, you’ll wait forever. Only buy now if it’s a good idea for you.”
