What Will Happen to Mortgage Rates

What Will Happen to Mortgage Rates After This Week’s Fed Rate Cut?

As we approach the Federal Reserve’s next meeting, borrowers and potential Boise homebuyers are anxiously awaiting news on interest rates. This week’s meeting follows September’s surprising 50 basis point rate cut, which initially sent mortgage interest rates tumbling to a two-year low. However, those benefits were short-lived as mortgage rates quickly rebounded in October, fueled by economic optimism around inflation and employment. This raises a critical question for buyers and homeowners: will this week’s anticipated Fed rate cut finally bring some sustained relief to mortgage rates?

In this post, we’ll analyze what might happen to mortgage rates after the anticipated rate cut and why Idaho homeowners and buyers should temper their expectations.

Fed Rate Cuts and Their Impact on Mortgage Rates

The Fed’s decision to cut rates again this week has been widely anticipated, with the CME Group’s FedWatch tool indicating over a 99% chance of a 25 basis point cut, bringing the federal funds rate down to a range of 4.50% – 4.75%. However, for homebuyers and homeowners looking to refinance, this rate reduction may not bring significant immediate relief to mortgage rates. Here are three reasons why the impact could be minimal:

1. Reductions Are Likely Already Priced In

Mortgage lenders frequently adjust their rates in anticipation of Federal Reserve actions, especially when there is a high probability of a rate cut. Many lenders already expect the 25 basis point reduction and have factored it into their current offers. As a result, even after the Fed’s official announcement, the mortgage rate may not noticeably change.

However, if the Fed surprises the market with a larger-than-expected 50 basis point cut, there may be a more meaningful decline in mortgage rates. This unexpected action could push lenders to readjust their pricing, potentially giving borrowers a short-term edge. But unless a surprise cut occurs, this week’s meeting may pass without much visible change in mortgage rates.

2. Mortgage Rates Are Influenced by More Than Just the Fed

While the Fed’s rate cuts play a role, mortgage rates are also heavily impacted by broader economic factors such as inflation, employment data, and Treasury yields. For instance, in October, despite no additional Fed cuts, mortgage rates rose sharply due to encouraging economic data that led lenders to believe that aggressive rate cuts were unlikely in the near future.

The 10-year Treasury yield, a key indicator for mortgage rates, has also remained high due to inflation concerns. If inflation or unemployment data fluctuates, these can either negate the impact of the Fed’s rate cut or even push mortgage rates higher. Simply put, a 25 basis point reduction by the Fed will not be a silver bullet for mortgage rate relief; other economic factors will play a significant role in determining how much, if at all, rates move.

3. Relief Is Likely to Be Gradual, Not Immediate

In recent years, many homeowners benefited from dramatic rate cuts during the pandemic, as mortgage rates fell rapidly to historic lows in 2020. However, that rate-drop environment was an anomaly driven by unprecedented economic policies and circumstances. The recent rate hikes, which have been steady but incremental over the past two years, show that any potential reductions will likely follow a similar gradual pattern.

For borrowers hoping to see rates plummet, this means patience will be required. It could take multiple rate cuts—possibly larger than this week’s predicted 25 basis points—to bring rates back down significantly. The Federal Reserve may continue cutting rates, but unless inflation and other economic pressures ease substantially, those cuts could be small and spread out over several quarters.

Should You Act Now or Wait?

Given these factors, borrowers may wonder whether it’s better to wait for potential future rate cuts or proceed with their Idaho home purchase or refinance now. Here are a few considerations:

• If You’ve Found Your Ideal Home: Holding off on a purchase for lower rates may be risky if you’ve found a home that fits your needs and budget. Since future rate reductions may take time to impact mortgage rates significantly, buyers could lose out on their desired property if they wait.
• For Those Looking to Refinance: Refinancing now could lock in a rate that, while higher than ideal, may still provide relief depending on your current mortgage rate. Additionally, refinancing later when rates have stabilized could be an option as well.
• Consider Adjustable-Rate Mortgages (ARMs): With the current high-rate climate, ARMs, which typically offer lower initial rates, may provide temporary relief for some borrowers. However, keep in mind that these rates can adjust in the future, so assess the long-term risks before committing.

The Bottom Line

This week’s anticipated Fed rate cut may not bring substantial, immediate relief to mortgage rates, as lenders are likely to have already priced in the reduction. Even if mortgage rates do dip slightly, the broader economic environment and factors such as inflation and Treasury yields will continue to play a significant role in determining future rate movements.

While it’s natural to hope for lower rates, today’s borrowers should be prepared for a gradual path to relief. If you’ve found a home or have a compelling reason to refinance, it might be wise to act now and refinance again later, rather than waiting indefinitely for an ideal rate drop. For buyers, securing your dream home may be more valuable in the long run than waiting for the “perfect” rate.

Key Takeaways:

• Expected 25 Basis Point Cut: This week’s Fed cut is likely already priced into Idaho mortgage rates, meaning little immediate change for borrowers.
• Other Economic Influences: Mortgage rates are influenced by inflation, employment data, and Treasury yields, not just the Fed’s actions.
• Gradual Relief Expected: Significant mortgage rate relief will take time, with rates expected to decline gradually rather than suddenly.

Ultimately, whether you’re buying a home or refinancing an existing mortgage, keep your financial priorities in mind and make an informed decision based on the current rate climate.