FINANCE
Bad news for first time home buyers as the Fed cuts rate: The forecasts for mortgage rates through 2025
Forecasts for mortgage rates in 2025 show few signs of relief, even as the Fed moves to cut the federal funds rate even further.
Federal Reserve Chair Jerome Powell announced on Wednesday afternoon that the US central bank would lower the federal funds rate by a quarter of a percent, bringing it down a full percent since the central bank began cutting rates in September.
The Federal Open Market Committee (FOMC), which determines the FFR, noted that its decision to continue cutting rates was motivated by the “balance” between the “risks to achieving its employment and inflation goals,” which represent both the central bank’s mandates: stable prices and full employment.
“The economic outlook is uncertain, and the Committee is attentive to the risks to both sides of its dual mandate,” reads the statement released by the FOMC. According to the Bureau of Labor Statistics, the national unemployment rate has jumped half a percent to 4.2 percent, and inflation, as tracked by the Consumer Price Index, has risen 2.4 percent since January.
When we will begin to see the impact of the Fed’s decision
For many, the change in monetary policy prompts questions related to how it will impact the housing market, specifically mortgage rates on 15- and 30-year fixed-rate loans. Facing higher home prices, a more expensive mortgage can price some buyers out of the market. First-time homebuyers can face considerable challenges, as a higher interest rate on one’s mortgage can increase their monthly payment beyond what they can afford.
In the short term, those hoping to secure a loan at a lower rate or refinance their current mortgage might not find much relief. Although the average interest rate associated with a 30-year mortgage initially dropped following the Fed’s decision to begin cutting rates in September, they began to climb again in October. As of last week, the average stood at 6.60 percent, down about a third of a percent from late November, when the figure reached the highest level since the Fed began cutting rates.
Each Thursday, weekly data on changes to average mortgage rates are published. Those scheduled for release tomorrow are not likely to reflect the Fed’s decision, but next week’s figures will provide greater evidence as to how this rate cut is beginning to affect the mortgage market.
Little relief on the way in 2025
Earlier this week, Fannie Mae, released their first forecast for mortgage rates for 2025. “Unless economic growth starts to slow significantly, we expect mortgage rates to remain elevated relative to pre-pandemic levels, moving only slightly downward to around 6 percent by the end of 2025,” reported the government-sponsored company.
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