How far will mortgage rates fall this week?

The moment borrowers have been waiting for is fast approaching. After battling the highest federal funds rate In decades, the Federal Reserve is preparing to deliver its first rate cut since 2020 when it meets this week. After the two-day meeting, the Fed is expected to announce a cut to the federal funds rate, which has been frozen for more than a year at a range between 5.25% and 5.50%, the highest level in 23 years.

While it is not yet known whether the Fed will implement a 25 basis point rate cut or a more aggressive half-percentage point cut, borrowers will be watching closely to see how much relief they can expect. credit card interest rates floating near a record and mortgage interest only slightly lower than their highest point since 2000the effects of this week’s rate cut will hopefully be widespread, and homebuyers in particular should start taking steps now to prepare.

But how far will mortgage rates actually fall this week? While speculation varies, the immediate effect may not be particularly strong. Here’s why.

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How far will mortgage rates fall this week?

In short, mortgage rates are unlikely to fall very far this week (if they fall at all).

That’s because many mortgage lenders have already factored these supposed rate cuts into their current offers. So what you see on a bank’s website today may not be significantly different from what you see on Thursday or even Friday, after the rate cuts have had a chance to reverberate through the market. The average rate of 6.41% on a 30-year mortgage is unlikely to fall to 6.16% this week, even if the federal funds rate falls by 25 basis points, as many expect.

Instead, the changes in mortgage rates will be cumulative, as multiple rate cuts are implemented and additional changes in the federal funds rate are priced in response.

With the Fed scheduled to meet again in November and December, further cuts seem likely. But they won’t be directly tied to the Fed’s actions. Economic data on inflation and unemployment could also affect mortgage rates.

They also track the 10-year Treasury yield. When that goes up, mortgage rates tend to follow, and when that goes down, mortgage rates tend to go down. So keep an eye on that performance as well and look at the market daily for opportunities to benefit from developments that could lead to a decline in interest rates, even if this decline is temporary.

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What about house prices?

While many buyers are understandably focused on getting the lowest possible mortgage rate, it’s also important to weigh these potential savings against what could be a rapidly rising mortgage rate. changing real estate marketAs rates fall, more buyers can enter the market, further increasing already high home prices. average house price in the US reached a record high this year, growing to just under $427,000. And that was frozen with the high rates.

So what happens if interest rates are cut and mortgage rates fall? Buyers should carefully consider this potential scenario and determine whether waiting for a small difference in mortgage rates is worth potentially paying significantly more for a home.

The heart of the matter

Mortgage rates are moving in the right direction, both for buyers and current owners who hope refinance. But it will be a gradual process involving multiple Fed actions and a series of encouraging economic reports to bring mortgage costs down significantly. So don’t expect a dramatic reduction this week. Instead, start preparing for a cooler mortgage rate environment in the weeks and months ahead, and weigh the costs of waiting to act against some of the benefits of to pin down an imperfect, but still lower mortgage rate now.