T
he Federal Reserve's recent rate cut and promise of further cuts has brought some relief to homebuyers, but it may not lead to a significant drop in mortgage rates. Even so, the Fed's policy shift has cleared the way for lower mortgage rates. However, with the bulk of easing already seen this year, economists warn that rates might tick up before declining again.

    Mortgage rates have been mostly falling since July, driven by anticipation of a Fed rate cut. The average 30-year mortgage rate is now 6.09%, down from its peak in May of 7.22%. A modest drop in mortgage rates can translate into significant savings over the long run. For example, a buyer who makes a 20% down payment on a $416,700 home at the current average mortgage rate would save about $312 a month compared to buying the same home in May.

    While lower rates give home shoppers more purchasing power, a mortgage around 6% is still not low enough for many Americans struggling to afford a home. Home prices have soared 49% over the past five years, roughly double the growth in wages, and remain near record highs due to a shortage of homes in many markets.

    Economists and mortgage industry executives expect mortgage rates to remain near their current levels this year, with Fannie Mae projecting an average rate of 6.2% for the October-December quarter and 5.7% for the same period next year. Mortgage rates are influenced by several factors, including how the bond market reacts to the Fed's interest rate decisions.

    The muted outlook for mortgage rates leaves prospective buyers and sellers with a familiar dilemma: test the housing market now or hold out for potentially lower rates. Some home shoppers are waiting for mortgage rates to fall below 6%, while others are opting to buy now, despite the competitive market. Real estate agents from Phoenix to Tampa, Florida, say many home shoppers are waiting for mortgage rates to ease further.

    The pullback in mortgage rates and a pickup in the supply of homes on the market make for a favorable backdrop for home shoppers this fall, typically a slower time of year for home sales. However, waiting for rates to possibly ease further next year could leave buyers facing heightened competition for the home they want. Meanwhile, potential sellers may still stay put.

    Demand for home loan refinancing has been growing, with refinance applications surging 24% last week. Lenders are increasingly offering incentives and pairing original loans with refinancing options to quell buyer hesitancy. Many homebuyers are opting for temporary rate buydowns and free refinancing, making it more affordable for them to purchase a home.