The Federal Reserve could cut interest rates once this year, which could impact mortgage rates and make homes more affordable to hopeful buyers.
As of June, the inflation rate in the United States was 3.3%. That is higher than the Fed's target of 2%, a level it has not reached since early 2021. However, Fed officials recently said data has shown improvements lately. If the inflation rate declines to 2%, the Fed may cut interest rates.
If the Fed cuts its benchmark rate this year, mortgage rates may also drop. This could make it more affordable for potential buyers to purchase a home. That being said, it can be challenging to predict how much mortgage rates will drop following a Fed rate cut.
What Do Experts Say?
Jason Obradovich, a chief investment officer at mortgage lender New American Funding, predicted that a Fed rate cut of 0.25% could bring down the mortgage rates by 0.50% to 0.75%.
"We believe that once the Fed moves for the first time to lower rates by 0.25%, it will signal a dramatic shift in policy and the market as a whole," Obradovich told CBS News.
As of the week ending July 3, the contract rate for the 30-year mortgage was 6.95%, per Freddie Mac's Primary Mortgage Market Survey. With Obradovich's prediction, the mortgage rate could fall to between 6.45% to 6.20%.
A separate prediction made by Melissa Cohn, regional vice president at William Raveis Mortgage, said mortgage rates could go down by 0.25% if the Fed cuts benchmark rates by 0.25%. She also noted that if the Fed makes bigger cuts, there could be an equal drop in mortgage rates.
Earlier this year, an analysis by Redfin found that a buyer with a $3,000 monthly budget on housing and a 6.7% mortgage rate on a home costing $453,000 gained about $40,000 in purchasing power after contract rates dropped by 1%.
Furthermore, the monthly mortgage payment for an average-priced home of $363,000 dropped by over $160 after the rate declined by 1%.
It is important to note that mortgage rates are only one of the several factors affecting housing affordability. The lack of inventory in the housing market is also one of the causes of high prices.
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