High mortgage rates have made homes increasingly unaffordable for homebuyers and homeowners, especially those looking to refinance. However, buyers may soon see relief insight after the Federal Reserve cuts rates.
Financial experts expect the Fed to cut its benchmark rate during its next meeting on Sept. 18. While the Fed's benchmark rate does not directly impact mortgage rates, it influences the borrowing costs for banks and other financial institutions. This, in turn, affects rates offered to consumers, including mortgage rates.
As of the week ending Sept. 5, the contract rate for the 30-year mortgage was 6.35%, according to Freddie Mac. Should the Fed make a rate cut next week, this move means buyers could see lower mortgage rates in the coming months.
How Far Could Mortgage Rates Fall?
It is unclear how big of a cut the Fed plans to make. The impact could also vary depending on other factors, including the economy or whether the Fed expects to make another cut before the end of 2024.
However, mortgage rates could hover around the 6% range before dropping to 4.5% or 5.5% later on, as forecasted by Josh Green, mortgage loan originator at Barrett Financial, who spoke with CBS News.
A separate prediction by William Raveis Mortgage regional vice president Melissa Cohn said the contract rate could fall by 0.25% if the Fed makes a quarter-point cut.
READ MORE: Here's How a Fed Interest Rate Cut Will Affect Mortgages: Experts
Could Mortgage Rates Increase?
While most experts believe mortgage rates would fall after the Fed cut, Redfin CEO Glenn Kelman said the contract rate could rise after the September meeting.
"Mortgages have already priced in at least a quarter-point cut, and if that is all that we get, we might actually see mortgage rates increase, whereas if we get a 50 basis point cut, rates will drop further," Kelman said, as quoted by Yahoo Finance.
Mortgage rates soared to record highs in 2022 after the Fed hiked its interest rate to curb persistent inflation. Prior to the hike, the average 30-year mortgage rate was under 4%.
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