How the Fed’s Rate Cut Will Shape Mortgage Costs as We Enter 2025!
What’s Trending Right Now
This week, the Federal Reserve made a splash by cutting interest rates yet again, igniting discussions about what this means for mortgage rates and the overall housing market.
With the latest decision, interest rates have now dipped by a quarter percentage point, landing in the range of 4.25% to 4.5%—a level not seen since December 2022. Fed Chair Jerome Powell commented, “It was a close call, but we believe it was the correct decision.”
Why This Matters to You
As rates have been steadily falling over the past year, financing options for cars and credit cards have become more accessible for the average American. However, the housing market is proving to be a tough nut to crack. Despite the Fed’s efforts, many potential homebuyers are still feeling the squeeze. With average home prices soaring to $357,469, it’s clear that a significant number of Americans are being priced out of the market.
Key Insights
The Fed’s initial strategy to raise interest rates was aimed at tackling inflation, which peaked at 9.1% in 2022. Over the past two years, the Federal Reserve has raised rates a staggering 11 times to combat this inflation, which affected economies worldwide in the aftermath of the COVID-19 pandemic. As U.S. inflation began to cool, the Fed made cuts in September and November, culminating in this latest reduction.
The Impact on Mortgage Rates Post-Meeting
While many believe that these rate cuts might be a boon for the housing market, it’s essential to recognize that the Fed primarily influences short-term lending rates. “Long-term rates, particularly mortgage rates, are swayed by market demand and external buyers of U.S. debt,” stated finance expert Kevin Thompson.
What Experts Are Saying
Thompson remarked: “With the 10-year Treasury yield now hovering around 4.5% and inching towards 5%, housing affordability is likely to face even greater hurdles. I project mortgage rates will linger between 6.5% and 7.5% for the foreseeable future.”
Financial literacy instructor Alex Beene added: “Unless something significant changes, the excitement over the housing market in 2025 may be a bit premature.”
He continued, “While we’ve seen interest rate cuts and can expect a couple more next year, it falls short of the initial four cuts anticipated. The Fed’s inflation concerns combined with rising treasury yields have actually pushed mortgage rates up in recent weeks instead of down.”
Melissa Cohn, regional vice president at William Raveis Mortgage, commented: “This cut has already been factored into the 10-year bond yields and will not directly affect mortgage rates. The cut will lower the prime rate, resulting in a decrease of about 0.25% for home equity loans.”
What’s the Forecast for Mortgage Rates in 2025?
Mortgage rates have seen a decline from their peak in 2023, with the average 30-year fixed rate fluctuating between 6.5% and 7.5% over the past year. Heading into 2025, rates were expected to settle in the mid-5% range but are now trending closer to 7%.
Experts now predict that 30-year fixed mortgage rates will stabilize in the mid-6% range next year.
Factors Influencing Mortgage Rates
Mortgage rates aren’t just swayed by inflation; they also hinge on your financial history and credit score. Other factors include the down payment size, proven income levels, the property’s location, and the type of loan you’re considering.
What’s Next?
While there’s a glimmer of hope for homebuyers right now, the Fed cautioned that only two more interest rate cuts are likely as we move into 2025. “With today’s action, we’ve reduced our policy rate by a full percentage point from its peak, and our stance is now much less restrictive,” Powell stated at this week’s news conference. “We can proceed with caution as we contemplate any further adjustments to our policy rate.”
