Mortgage Rates Continue to Fall, Fed Cuts Rates as Anticipated
Mortgage rates continue their downward trajectory, falling another 11 basis points last week according to the Freddie Mac Primary Mortgage Market Survey released September 19th. As they continue to decline towards the six percent mark, it is reviving purchase and refinance demand for many consumers. While mortgage rates do not directly follow moves by the Federal Reserve, their first cut in over four years will have an impact on the housing market. Declining mortgage rates over the last several weeks indicate this cut was mostly baked in, but rates will likely fall further, sparking more housing activity.
Mortgage applications increased 14.2 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Applications Survey for the week ending September 13, 2024. “Application activity was up significantly last week, as market expectations of a rate cut from the Fed pulled mortgage rates lower.” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “Refinance applications were up 24 percent, more than double last year’s pace, with both conventional and government activity jumping to the fastest pace of refinancing since 2022.” Added Kan, “There was also an increase in purchase applications. Homebuyers are seeing improving affordability conditions, sparked by lower rates and slower home-price growth.”
On Wednesday, The Federal Reserve enacted its first interest rate cut since the early days of the Covid pandemic, slicing half a percentage point off benchmark rates to head off a slowdown in the labor market. Outside of the emergency rate reductions during Covid, the last time the FOMC cut by half a point was in 2008 during the global financial crisis. The decision lowers the federal funds rate to a range between 4.75%-5%. “We’re trying to achieve a situation where we restore price stability without the kind of painful increase in unemployment that has come sometimes with this inflation. That’s what we’re trying to do, and I think you could take today’s action as a sign of our strong commitment to achieve that goal,” Chair Jerome Powell said at a news conference following the decision.
Regarding the rate cut, Mike Fratantoni, senior vice president and chief economist for the Mortgage Bankers Association, says the FOMC has “signaled that this is the first cut in a series that should bring rates down by about 2 percentage points by the end of 2025. It is also important to note that the FOMC’s estimates of the neutral fed funds rates keeps moving up, and that the committee members see a range of outcomes, from 2.5 percent to 3.5 percent as consistent with neutral in the long run. Mortgage rates likely had this cut priced in, and lower mortgage rates, now close to 6 percent, have resulted in much more refinance and some additional purchase activity in recent weeks,” Fratantoni says. “We do expect that if mortgage rates remain near these levels, it will support a stronger than typical fall housing market and suggest that next spring could see a real rebound in activity.”
