The Federal Reserve gave home shoppers what they hoped for this week: a big rate cut and a signal of more cuts to come.
Even so, aspiring homebuyers and homeowners eager to refinance should temper their expectations of a big drop in mortgage rates from here. While the Fed doesn't set mortgage rates, its policy pivot does clear a path for mortgage rates to go lower. But in this case, the Fed's action was widely anticipated, so rates moved lower well before the cut was even announced.
When mortgage rates rise, they can add hundreds of dollars a month in costs for borrowers. That coincided with the Fed jacking up its benchmark interest rate to fight inflation. Rates have been mostly declining since July in anticipation of a Fed rate cut.
The average rate on a year mortgage is now 6. That's down from 7. Even a modest drop in mortgage rates can translate into significant savings over the long run. For a home listed at last month's median U.
They remain near record highs, propped up by a shortage of homes in many markets. Mortgage rates would have to drop back to near rock-bottom lows from three years ago, or home prices would have to fall sharply for many buyers to afford a home.
