The Federal Reserve on Thursday announced it will lower its benchmark rate by a quarter point on the heels of the US presidential election and Donald Trump's win.
The recent cut comes less than two months after the Fed cut its borrowing costs by 0.50 percentage points in September. The cut reduces the federal funds rate to between 4.5% and 4.75%.
Although the initial benefit following the Fed's cut will be small, it affects your money and mortgage on a home. Here's how the cuts could affect mortgage rates.
How Can Interest Rate Cuts Affect Mortgage Rates?
Housing affordability has been a major issue in the United States, partly due to the sharp rise in home prices and mortgage rates.
In the week ending Nov. 7, the contract rate for the 30-year mortgage term settled at 6.79%, marking a 0.7% increase from last week's 6.72%, according to data from Freddie Mac's Primary Mortgage Market Survey.
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Cuts in the Fed's benchmark rate can relieve mortgage rates and influence them to go lower.
"Continued rate cuts could begin to drive down mortgage rates, which have remained stubbornly high," Michele Raneri, vice president of US research and consulting at TransUnion, said.
Will Mortgage Rates See a Significant Drop?
In the previous cut, experts believed mortgage rates will drop by the same percentage points as the Fed's cuts. This meant mortgage rates were expected to drop by a half-point after they cut their interest rates by 0.50 percentage points in September.
However, mortgage rates increased significantly following the September rate cut due to strong economic data and political uncertainty. Experts say the recent cut is unlikely to reduce those rates either, per CNET.
This was echoed by LendingTree senior economist Jacob Channel, who told CBS News that mortgage rates will not fall "as long as investors remain worried about what the future may bring."
That said, experts noted that ongoing rate cuts through 2025, combined with weaker economic data, could result in mortgage rates falling.
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