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The Federal Reserve recently reduced its key interest rate for the first instance since the previous year; however, this action does not necessarily imply that mortgage rates will continue to fall.

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2025 September 29 . 11:44 AM

2 min read

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The housing market is experiencing a significant shift, with mortgage rates and home prices changing rapidly. Here's a rundown of the current state of affairs and what it means for home buyers and sellers.

Danielle Hale, chief economist at Realtor.com, predicts that the average rate on a 30-year mortgage will be between 6.3% and 6.4% by the end of this year. This forecast comes after a decline in rates, with the average rate reaching just over 7% by mid-January 2020 but dropping to a 2-year low of 6.08% one week after the Fed's last rate cut in 2019.

Home prices, while rising more slowly than in years past, are still up by roughly 50% nationally since the start of this decade. However, sales of previously occupied U.S. homes sank last year to their lowest level in nearly 30 years and have remained sluggish so far this year. This could be attributed to the rising mortgage rates and the challenging economic conditions.

The Federal Reserve, aiming to stimulate the economy, has made a rate cut of 0.25% on Wednesday, the first since last year. The Fed projects to lower its benchmark rate twice more this year. However, the Fed's latest projections show a less aggressive path of rate cuts than the market has been expecting.

The setting of the next mortgage rates depends primarily on how large US banks adjust their lending rates in response to the Federal Reserve's signals on further rate cuts. While the Fed's rate cuts influence the benchmark cost of money, individual banks determine their mortgage rates based on their lending policies, credit risk assessments, and market demand, with a typical delay and indirect effect on mortgage rates.

Many homeowners looking to refinance have already seized on the decline in rates, sending applications for refinance loans sharply higher in recent weeks. One rule of thumb to consider when refinancing is whether you can reduce your current rate by at least one percentage point, which helps blunt the impact of refinancing fees.

Inflation has so far refused to go below the Fed's 2% target. The 10-year Treasury yield has been easing since mid-July due to signs of a weakening job market. Mortgage rates are influenced by several factors, including the 10-year Treasury yield.

Lower mortgage rates could bring in more buyers, making the market more competitive at a time when sellers across the country are having a tougher time driving a hard bargain. However, there is still some risk of upward pressure on mortgage rates due to the gap between market and Fed expectations.

Predicting when mortgage rates will decline and by how much is daunting because so many variables can influence their trajectory from one week to the next. Home shoppers who can afford to buy at current rates may be better off buying now rather than attempting to time the market.

In conclusion, while mortgage rates are expected to remain relatively high, they have shown a downward trend in recent months. Home buyers and sellers should keep a close eye on the stock market today and consult with financial advisors to make informed decisions about their housing plans.