The Federal Reserve’s interest rate cut last week has led many to wonder what it means for mortgage rates. The housing website Redfin noted that some would-be homebuyers aren’t aware that we’ve already seen a steep decline, while others are waiting for mortgage rates to fall more.
So it will surprise some home seekers out there that 30-year mortgage rates were broadly flat to a touch higher last week even with the Fed’s bigger-than-expected half-a-percentage-point cut. This is because markets and the Fed now agree that in a “softish” economic landing, the fed funds rate is likely to eventually fall to around 3%, well above pandemic-era levels. That limits how much mortgage rates can decline — particularly by next spring’s housing season — after dropping to 6.15% from 8% over 11 months. Those hoping for much lower should be careful what they wish for: A world of substantially lower mortgage rates is one of substantial job losses.