The State of Mortgage Rates

When the Federal Reserve cut interest rates in mid-September by half a point — for the first time since COVID — it might have made sense to presume mortgage rates would drop, too. But, in fact, they climbed a bit to the low 6% range. They’re still lower than they were earlier this year, though.

Here’s how CBSNews.com explained things:?

The big question for most buyers is whether the Fed’s moves will push current mortgage rates low enough so they can finally buy a home with affordable monthly payments. ?Mortgage costs had already begun dropping in anticipation of the Fed’s actions and are down over a point from the post-pandemic highs — but are still higher than during the pandemic and in the years leading up to it. …?

For would-be homeowners focused on the Fed, it’s important to realize the central bank doesn’t play as big a role?in driving borrowing costs as some buyers might think.?… The Fed sets the overnight rate at which banks borrow from each other. It doesn’t impact mortgage rates directly.?

In other words, sometimes lower interest rates and lower mortgage rates go hand in hand, and sometimes they don’t.

And even if the mortgage rate drops, don’t expect home prices to do so, too. Instead, however, your money could go farther. I recently listed a fixer-upper on Madison’s east side that generated 39 showings in one weekend, which is a staggering number that suggests more people are now entering the market — thanks to lower mortgage rates.

In early May, mortgage rates sat at 7.22%, which means the monthly payment on a $300,000 home with principal and interest only was $2,040. If mortgage rates keep hovering around 6%, the monthly payment on that same house would be $1,799. If you previously could afford a home with monthly payments of $2,040 (or more), you now might be able to consider homes priced around $350,000 rather than $300,000. ?

More potential new buyers in the market is good news for sellers, too — although CNN.com notes that nearly 60% of the 50.8 million active mortgages have rates below 4%, which means many homeowners that are locked into cheap rates probably won’t opt to sell unless they absolutely need to move.

?The Fed might not be done yet, with the potential for interest rates to keep falling into 2025. At this point, however, we don’t know for sure. So if you find the home that’s right for you, try to buy it now. And if mortgage rates do gradually keep falling, current homeowners should consider refinancing.

As always, if you have questions or would like more information about mortgage rates and how they might affect you, I’m here to help.