Summary 

The Federal Reserve announced a second rate cut of the year, reducing the federal funds rate by 0.25% to a range of 4.5% to 4.75%. This decision follows a year of easing labor market conditions and progress in inflation, which remains above the Fed’s 2% target. While this cut aims to stabilize borrowing conditions, experts in the mortgage industry caution that its impact on mortgage rates may not be immediate.

Mortgage professionals note that election results, which indicated expectations of stronger economic growth and higher inflation, have caused long-term rates to rise. As a result, the immediate effects of the Fed’s rate cut on mortgage rates are likely to be muted. Despite this, some experts anticipate that a series of rate cuts could help reduce borrowing costs and stimulate homebuyer activity in the coming year.

The bond market’s volatility, especially related to the 10-year Treasury yield, has had a stronger influence on mortgage rates than the Fed’s actions. Industry leaders believe that mortgage rates will remain high in the short term due to these market fluctuations. However, they hope that continued rate cuts and stabilization in bond markets could improve affordability by early 2025.

In summary, while the Fed’s rate cut offers potential long-term relief for homebuyers, the immediate effects on mortgage rates are limited by other market forces, such as election-driven bond market volatility. Mortgage experts suggest that a more favorable rate environment may emerge in 2025.

How will the quarter-point rate cut impact mortgage rates?

Below article; by Candyd Mendoza.

The Federal Reserve announced its second rate cut of the year on Thursday. The quarter-point reduction has been closely watched by the mortgage industry, but experts suggest its effects may not be felt by homebuyers right away.

This rate reduction, half the size of the Fed’s September cut, brought the federal funds rate down to a range of 4.5% to 4.75%.

“Since earlier in the year, labor market conditions have generally eased, and the unemployment rate has moved up but remains low,” the Federal Open Market Committee said in a statement. “Inflation has made progress toward the Committee’s 2 percent objective but remains somewhat elevated.”

The Fed’s decision followed President-elect Donald Trump’s recent re-election, with voters expressing ongoing concerns about inflation and economic stability. While the cut aims to stabilize borrowing conditions, housing industry experts said that the immediate impact on mortgage rates may be limited due to other factors, including market volatility post-election.

Mixed reactions on mortgage rate impact

Market activity in response to the election has driven long-term rates higher, according to the Mortgage Bankers Association (MBA).

“The big impact on rates this week was clearly the election,” said MBA chief economist Mike Fratantoni. “As results rolled in, longer-term rates jumped higher. Investors expect somewhat stronger economic growth, higher inflation, and larger deficits.”

As investors processed election results, expectations of stronger economic growth, higher inflation, and larger deficits pushed longer-term rates upward.   

“MBA expects that mortgage rates will remain within a fairly narrow range over the next year, with mortgage rates moving higher on signs of economic strength and more stimulative fiscal or monetary policy, or lower if it’s the opposite,” Fratantoni added. “Housing markets continue to be primed for a stronger spring homebuying season, boosted by more housing supply and slower home-price growth.”

With expectations of another 25-basis-point rate cut in December, some mortgage professionals remain hopeful for a more affordable borrowing environment in the coming year. Samir Dedhia, CEO of One Real Mortgage, views the Fed’s actions as part of a strategy to support economic stability as 2025 approaches.

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She added: “However, following the results of the recent elections, including shifts in the House of Representatives and Senate, there is potential uncertainty surrounding future rate decisions. Investors may take time to assess new policies related to tariffs, budget deficits, and other inflationary factors, which could delay additional rate cuts in the first half of 2025.”

Despite these variables, Dedhia believes that consecutive rate cuts could gradually benefit homebuyers.

“For the housing market, these immediate rate cuts indirectly could help reduce borrowing costs (with mortgage rates decreasing) and provide relief to homebuyers who have been discouraged by high mortgage rates,” she said. “Although one rate cut may have a limited effect, consecutive cuts could improve affordability and drive more market activity, particularly if the Federal Reserve indicates a commitment to maintaining lower rates over a longer period.”

Bond market volatility

While the Fed’s rate cut brings some hope, mortgage rates may not decrease immediately. Selma Hepp, chief economist at CoreLogic, said that the cut was widely expected and is unlikely to have a major impact on housing market dynamics.   

“Potential homebuyers will be disappointed to see that mortgage rates remain stubbornly high, as it also moves with the 10-year Treasury, so the markets will only slowly begin to normalize,” she said. “We anticipate a much more improved rate environment for home buying next year.”

Eric Orenstein, senior director at Fitch Ratings, agreed that recent Treasury yield fluctuations have had a stronger influence on mortgage rate movement than the Fed’s adjustments.

“Volatility in treasuries has been the bigger catalyst for recent mortgage rate movement as opposed to the Fed’s rate cuts so far,” Eric Orenstein said. “Still, the Fed’s easing cycle should take pressure off origination volumes in 2025 as more mortgages become ripe for refinancing.”

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Other mortgage industry leaders pointed out that bond market reactions, largely due to post-election volatility, are keeping mortgage rates elevated. Lloyd San, senior vice president of enterprise business development at Voxtur, commented that the recent rate cut was already factored into lending rates by mortgage lenders.

“Today’s anticipated rate cut has already been priced in by mortgage lenders and is unlikely to lower home lending costs in the immediate future. The primary reason is that there is a flight to safety in the bond markets due to post-election volatility. This is driving the up rates on 10-year Treasuries, which are more directly correlated to mortgage rates. We don’t anticipate mortgage lending costs to meaningfully reduce until the first quarter of 2025,” San said.