T
he 30-year fixed-rate mortgage has dropped to 6.2% this week, a decrease compared to last year when rates surged above 7%. However, some prospective home buyers are holding out for even lower rates in anticipation of the Federal Reserve’s meeting next week, where it’s expected to cut short-term interest rates. Despite this, home buyers may be getting their hopes up too much: “Even with the September expected rate cut [by the Fed], mortgage interest rates are not likely to move as this cut has been baked into the mortgage market,” says Jessica Lautz, deputy chief economist of the National Association of REALTORS®.

    Instead, prospective buyers may want to take advantage of current rates, which have fallen more than half a percent over the last six weeks and are at their lowest level since February 2023, according to Freddie Mac reports. The savings on a $400,000 mortgage today compared to October 2023, when rates were much higher, is about $341 monthly and $4,092 annually, Lautz says. “This is substantial,” she adds.

    However, the homebuying market remains mostly constrained. The Mortgage Bankers Association’s weekly mortgage application index showed that home purchase applications were up only 2% compared to the previous week and down 3% from a year ago. “The overall housing market remains constrained due to the total cost of homeownership,” Lautz says. Home prices have risen to record highs in recent months.

    Despite the improving mortgage rate environment, prospective buyers remain on the sidelines as they negotiate a combination of high house prices and persistent supply shortages, says Sam Khater, Freddie Mac’s chief economist. Freddie Mac reports the following national averages with rates for the week ending Sept. 12: 30-year fixed-rate mortgages averaged 6.20%, falling from last week’s 6.35% average. Last year at this time, 30-year rates averaged 7.18%. 15-year fixed-rate mortgages averaged 5.27%, dropping from last week’s 5.47% average. A year ago, 15-year rates averaged 6.51%.

    The Federal Reserve is expected to cut its benchmark interest rate at its Sept. 17-18 meeting. The Fed sets the federal funds rate—the interest rate which banks lend to one another. They do not set mortgage rates. However, when the Fed decreases its federal funds rate, it can influence other rates, including mortgages. Mortgage rates have already priced in some of the effects of the Fed’s rate cut, NAR Senior Economist Nadia Evangelou writes at the association’s Economists’ Outlook blog. This could mean rates may not fall significantly after the cut next week. Mortgage rates already are more than 100 basis points lower than they were on May 29, Evangelou notes.

    Still, predicting mortgage rates can be difficult, as numerous economic factors can influence them. Also, the Fed is expected to lower its benchmark rate by 50 basis points by the end of the year, which could eventually help rates fall lower over the remainder of the year. If mortgage rates do fall further, Evangelou says prospective buyers should be ready to compete. “Lower mortgage rates reduce the cost of borrowing, increase purchasing power and can create a sense of rush to secure a lower rate, all of which tend to drive up housing demand,” she says. “The boost in demand could lead to more competition among buyers” and upward pressure on home prices.

    If you’ve already found a home that fits your needs and budget, there’s no need to wait for the official rate cut, Evangelou suggests. This may help you avoid increased competition, and you can always refinance if rates drop significantly.”