After months of anticipation, the Federal Reserve cut interest rates on Wednesday by half a percentage point.
That will have an impact on the housing market — but it’s unlikely to make a huge difference for those struggling to afford a home.
Let’s take a look.
Mortgage rates might not actually drop much further right now
Mortgage rates have been pretty high for the last couple of years, especially compared with the historic lows they reached during the peak of the COVID-19 pandemic.
Rates bottomed out below 3% for a 30-year fixed-rate mortgage during 2020 and 2021 when the pandemic led to lockdowns, but they then climbed to nearly 8% last year amid a robust economy and rising inflation.
But the prospect of rate cuts has already helped send mortgage rates lower, even before the Fed announced its actual decision on Wednesday. Long-term fixed-rate mortgage rates are now at 6.2%, the lowest since February 2023. (It’s worth noting, though, that other factors besides the Federal Reserve’s benchmark interest rate influence mortgage rates, including economic conditions.)
This means effectively that the rate cut announced by the Federal Reserve may already be priced in — though mortgage rates are bound to fall a little more given that policymakers have made clear they intend to continue cutting interest rates into next year.
Charlie Dougherty, a senior economist at Wells Fargo, expects mortgage rates to drop “marginally” after the Fed’s rate cut on Wednesday.
He and his colleagues forecast that the average rate on a 30-year fixed-rate mortgage will be about 6.2% by the end of this year — where it is now.
But Dougherty expects…
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