The Fed lowered rates, now what?

If you've been keeping an eye on mortgage rates, you might be wondering: What does the Fed's rate cut mean for me? On September 18, 2024, the Federal Reserve made its first rate cut in two years—a big moment in the world of finance. But how does this affect your mortgage, and more importantly, your ability to afford a home? Let’s break it down.

The Fed's Rate Cut: What You Need to Know

• The Federal Reserve uses rate cuts to help the economy. When inflation cools and unemployment becomes a concern, the Fed lowers rates to stimulate growth. This time, they’re signaling confidence that inflation is under control, which is good news for your wallet. Lower inflation means lower costs for everyday goods and services, making things a bit easier for most households.

• But, here’s the kicker: the Fed’s rate isn’t directly tied to mortgage rates.

  How the Fed's Rate Cut Affects Mortgage Rates

• There’s a common misconception that when the Fed lowers rates, mortgage rates instantly drop too. While the Fed's rate affects short-term loans and credit, mortgage rates follow a different path—often tied to longer-term indicators like the 10-year Treasury yield.

• Here’s the deal: mortgage rates have already anticipated the Fed's moves. In fact, they’ve dropped nearly 2% from last year’s peak. While this Fed cut alone might not make rates plummet overnight, it's still part of a broader trend toward lower rates. Investors are betting on more cuts down the line, and mortgage rates are reflecting that optimism.

  Affordability: The Real Metric

• Here’s the thing: it’s not just about interest rates—it’s about what you can afford.

• Your monthly mortgage payment is what truly matters, and that payment is influenced by several factors, including interest rates, but also your down payment, taxes, and insurance. With inflation cooling and rates stabilizing, the bigger picture shows that affordability is improving. Even if mortgage rates don’t drop dramatically, the overall reduction in inflation can help you better balance your budget and keep more money in your pocket.

  The Bigger Picture

• It’s important to remember that mortgage rates are forward-looking. They’ve already baked in the market's expectations for future Fed moves. While the recent rate cut is good news, don’t expect rates to change dramatically overnight. The market has already made adjustments in anticipation of the Fed’s actions, so what’s more important is where we’re headed: toward greater affordability and economic stability.

  What Should You Do Next?

• The Fed’s recent rate cut shows that we’re moving in the right direction. Inflation is easing, and affordability is improving, but there’s more to consider. If you’ve been thinking about buying a home or refinancing, now might be the time to explore your options. Mortgage rates may not drop further in the short term, but they’ve already fallen significantly from last year.

• Want to know how this impacts your home-buying journey? Let's chat. Together, we can figure out how to make the most of this evolving market.