You’ve probably seen the headlines about the Federal Reserve and wondered—what does this actually mean for me as a homeowner or buyer? Let’s break it down.

WHAT EXACTLY IS THE FEDERAL FUNDS RATE?

The Federal Funds Rate is the short-term interest rate banks charge each other to borrow money. It’s not the same as mortgage rates, but it does influence borrowing costs across the economy. In other words, the Fed doesn’t set mortgage rates, but its actions often shape the direction they take next.

WHY MARKETS ALREADY SAW THIS CUT COMING

Here’s where it gets interesting. Mortgage rates don’t wait around for the Fed to officially announce a cut. Instead, they often move in advance based on what financial markets expect the Fed will do.

Take this summer, for example. After weaker-than-expected jobs reports on August 1 and September 5, financial markets grew more confident that a cut was around the corner. As a result, mortgage rates ticked down each time well before the Fed made its move.

So what happens now?

• If the Fed delivers the widely expected 25-basis point cut, that’s likely already priced into current mortgage rates. In other words, don’t expect a big drop.
• But if they surprise the markets with a 50-basis point cut, we could see mortgage rates come down a bit more.

WHERE DO MORTGAGE RATES GO FROM HERE?

Even if the upcoming cut doesn’t move rates much, many economists believe the Fed could cut the Federal Funds Rate again before the end of the year, especially if

the economy continues to cool.

As Sam Williamson, Senior Economist at First American, explains:

“For mortgage rates, investor confidence in a forthcoming rate-cutting cycle could help push borrowing costs lower in the back half of 2025, offering some relief to housing affordability and potentially helping to boost buyer demand and overall market activity.”

In short, if the Fed begins a cycle of cuts or if markets simply believe they will, mortgage rates could gradually ease through late 2025 and into 2026. Of course, surprises like hotter-than-expected inflation could quickly change the outlook.

BOTTOM LINE

Mortgage rates won’t mirror the Fed’s moves one-for-one, and they’re unlikely to plummet overnight. But if the Fed enters a rate-cutting cycle, buyers and homeowners may see some relief in the months ahead.

If you’ve been waiting and watching the housing market, now’s a smart time to discuss your options. Even small shifts in rates can make a meaningful difference in affordability. Let’s connect and talk strategy so you’re ready to make the most of what’s ahead.