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Will mortgage rates go down if the Fed cuts rates? Maybe you'll get one last chance

Posted on by Vanessa
Will mortgage rates go down if the Fed cuts rates? Maybe you'll get one last chance

One day after Donald Trump's election victory, investors sent bond yields significantly higher. The “Trump trade” is likely to keep home loan rates rising no matter what the Federal Reserve does on Thursday when it announces whether it will cut the federal funds rate, experts say.

That means anyone looking to buy a home or secure a lower refinance rate needs to take advantage of every opportunity in the next few weeks before rates rise for a while.

“Rates have moved in a direction that suggests investors are preparing for either higher inflation or stronger economic growth,” said Danielle Hale, chief economist at Realtor.com. “In any case, it seems likely that mortgage rates will rise, at least in the short term.”

When the Fed announces its decision, economists widely expect a 25 basis point cut. Mortgage rates generally follow the trajectory of this benchmark rate – but not recently. When the Fed met in September, it cut interest rates by 50 basis points. According to Freddie Mac, the average 30-year fixed-rate mortgage at that time was 6.20%. As of last week, the value was over 6.72%. Freddie will release last week's rates on Thursday morning.

How will mortgage rates be affected after the election?

Rates are unlikely to reverse any time soon, said Lisa Sturtevant, chief economist at Bright MLS, in an emailed comment.

“Trump’s fiscal policies are expected to result in rising and more unpredictable mortgage rates through the end of this year and into 2025,” she said. “Bond yields are rising as investors expect Trump’s proposed fiscal policies will expand the federal deficit and reverse progress on inflation.”

More: Inflation is trending downwards. Try telling that to the real estate market.

Economists and investors expect Trump's policies to be inflationary because tax cuts will likely force the federal government to issue more debt, Sturtevant noted. In this case, the government has to pay more to attract investors. His promises to impose tariffs on imported goods will also raise prices.

“A reversal in inflation, which has fallen for much of the past two years, would complicate the Federal Reserve's decision to cut rates,” Sturtevant added. “If the Fed holds off on rate cuts, mortgage rates could stay higher for longer.”

Should you secure a lower rate now?

Nina Gidwaney, head of refinance and home equity at Chase Home Lending, notes that it's “nearly impossible” for consumers to time the market. “We believe the market has already priced in a 25 basis point Fed rate cut, and this is reflected in current mortgage rates,” she said.

But Hale believes anyone looking to secure a lower mortgage rate, whether for purchasing a home or refinancing a mortgage taken out in recent years, may have a narrow window of opportunity in the coming weeks given some of Tuesday's market moves subside. “Markets tend to overreact sometimes, and I think some of what we're seeing now may be an overreaction,” she told USA TODAY.

For anyone who has been trying to buy, the final weeks of the year could offer an opportunity, Hale said. The number of homes listed for sale has risen steadily in recent months, reaching its highest level since before the pandemic in October, according to data from Realtor.com. As is often the case in autumn, prices have also fallen slightly. The average national price of a home listed for sale is now the same as a year ago at $424,950.

That could change soon, Sturtevant said. “The real estate market was just beginning to feel like it was moving more toward equilibrium following the unprecedented impact of a global pandemic and associated responses,” she wrote. “The next few months could be a challenging time for potential homebuyers. “

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This story has been updated to reflect that Nina Gidwaney is the director of refinancing and home equity at Chase Home Lending.

This story has been updated to remove an additional, accidental word.

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