T
he Federal Reserve’s 25‑basis‑point cut on September 17 lowered the federal funds rate to a 4‑4.25 % range, the first change in nine months. While the move may not drive mortgage rates lower, it has spurred a sharp rise in refinance and purchase applications, signaling a healthier fall housing market.
Fed officials framed the cut as a “risk‑management” decision. Chairman Jerome Powell said the policy shift was meant to temper inflation, which he expects to ease more slowly than initially projected. He noted that the September meeting occurred amid competing forces: the labor market’s resilience and the need to keep inflation near the 2 % target. Retail inflation in August stood at 2.9 %.
The market reaction was mixed. Equity indices were flat, but real‑estate shares rallied, with iBuyers Offerpad and Opendoor each gaining about 14 %. The Fed’s projections hint at two additional cuts by the end of 2025, potentially lowering rates by another 50 bps.
Mortgage rates are influenced by short‑term rates through Treasury yields. Although the 25‑bp cut was largely priced in, the average 30‑year rate fell to 6.13 % on September 16 from 6.59 % a month earlier. Analysts expect rates to hover near 6 % for the near term, a psychological threshold that could boost buyer activity. Melissa Cohn of William Raveis Mortgage noted that monitoring data will reveal the trajectory of rates for the rest of the month.
Refinance activity has surged. The Mortgage Bankers Association reported a 70 % year‑over‑year jump in refinance applications for the week ending September 12, while purchase applications rose 20 %. MBA Chief Economist Mike Fratantoni said that sustained rates near 6 % should keep origination strong, benefiting recent buyers and new home seekers alike.
Builders feel the ripple effect of lower short‑term rates. Rising material costs and weak demand have dampened builder sentiment, with housing starts falling to a seasonally adjusted 1.31 million units in August—down 8.5 % from July and 6 % YoY. Robert Dietz, chief economist at the National Association of Home Builders, argued that the Fed’s cut could lower construction and land‑development loan rates, encouraging more housing production.
Despite these positives, uncertainty remains. Realtor.com’s chief economist Danielle Hale cautioned that rates could rebound amid economic volatility. Nonetheless, consumers have already benefited from the decline in mortgage rates, which dipped below 6.5 % for the first time in nearly a year and are likely to stay low for the foreseeable future.
