More than half of homeowners want mortgage rates under 6%. Will a Fed cut help?

The Federal Reserve on Wednesday opted to hold its key interest rate steady, acknowledging progress with inflation as analysts expect the central bank to begin lowering rates this fall.

Most homeowners only think about interest rates when moving or refinancing. While mortgage rates have already started to dip, if the Fed follows through with a cut in September, more homebuyers could come off the sidelines.

Yet — even with Fed intervention — there’s a disconnect between where rates could go and where buyers and sellers would prefer them to be, according to Bankrate findings.

How Fed cuts could impact mortgages in 2024 and 2025

The Fed doesn’t set fixed mortgage rates, but its decisions have ripple effects that impact home borrowing costs. In recent weeks, the average 30-year mortgage rate declined under 7 percent — a first in months — as better inflation readings upped the odds of a September rate cut.

That wasn’t totally unexpected. For our second quarter Economic Indicator Survey, we asked 17 experts for their take on the economy, including how mortgage rates might move through the end of 2024 and in 2025. Of the experts who offered rate predictions, all anticipated the 30-year rate to average lower in 2025 compared to the end of 2024. For this year, the average forecast was 6.60 percent. For next year, the average forecast was 6.14 percent.

The experts in our Mortgage Rate Trends poll in mid-June held similar views. When asked for rate predictions, 63 percent projected lower average 30-year rates in 2025 than in 2024. The forecasts averaged 6.76 percent in 2024 and 6.38 percent in 2025.

“The rate on the 30-year fixed mortgage will decline very slowly over the remaining months of 2024,” said Michael Becker, sales manager for Sierra Pacific Mortgage. “However, as inflation recedes, and employment losses mount next year, the Fed will lower rates more than most expect, and we will see mortgage rates drop faster in 2025 than they did in 2024.”

“Once the Fed kicks off a rate-cutting cycle, we do expect that mortgage rates will move somewhat lower,” said Mike Fratantoni, chief economist for the Mortgage Bankers Association. “However, we expect that this cutting cycle will be relatively brief, and if markets agree with that expectation, long-term rates will not drop that far.”

Will mortgage rates drop enough to entice homeowners?

While 30-year mortgages haven’t been below 6 percent since 2022, many homeowners remain locked in on that threshold. Fifty-two percent of homeowners in our July Mortgage Rates Survey said they would need a rate less than 6 percent to be comfortable buying a home this year. Forty-seven percent would need a rate lower than 5 percent, and 38 percent would need a rate under 4 percent. (Respondents could choose more than one rate scenario.)

If we weigh that against the expert takes, rates might not be where homeowners want them, this year or next. None of the experts in our Economic Indicator Survey or Mortgage Rate Trends poll expected rates below 6 percent in 2024, and of those who offered predictions, a combined one-quarter projected rates the same for 2025.

Of course, with the Fed poised to cut rates and the economy constantly shifting, these sentiments could change. Although experts don’t expect rates to return to 2022 levels, if you want to buy or sell a home this year or next, focus on factors you can control — especially your credit rating, says Greg McBride, CFA, chief financial analyst for Bankrate.

“Because mortgages are large loans repaid over a long period of time, a modest movement in rate can make a notable difference in your monthly payment,” McBride says. “For example, there is a $50 difference in monthly payment on a $300,000 loan at 6.75% rather than 7%.”

Over the course of a 30-year loan, that’s a difference of about $54,000 in total interest.

“This is why it is so important to have your credit in the best possible shape and to shop around for the most competitive rates — every little difference in rate matters!” McBride says.

• Methodology

  The Second-Quarter 2024 Bankrate Economic Indicator Survey of economists was conducted June 13-24, 2024. Survey requests were emailed to economists nationwide, and responses were submitted voluntarily online. Responding were: Mike Fratantoni, chief economist, Mortgage Bankers Association; Odeta Kushi, deputy chief economist, First American Financial Corporation; Yelena Maleyev, senior economist, KPMG US; Gregory Daco, chief economist, EY; Scott Anderson, chief U.S. economist, BMO; Dante DeAntonio, senior director, Moody’s Analytics; Lawrence Yun, chief economist, National Association of Realtors; Bernard Markstein, president and chief economist, Markstein Advisors; Robert Frick, corporate economist, Navy Federal Credit Union; Bill Dunkelberg, chief economist, NFIB; Joseph Mayans, director of U.S. economics, Experian; Mike Englund, chief economist, Action Economics; Brian Coulton, chief economist, Fitch Ratings; John E. Silvia, founder, Dynamic Economic Strategy; Tuan Nguyen, economist, RSM; Ryan Sweet, chief U.S. economist, Oxford Economics; and Patrick Horan, Research Fellow, Mercatus Center at George Mason University. The Mortgage Rates Survey was conducted using an online interview administered to members of the YouGov Plc panel of individuals who have agreed to take part in surveys. Emails were sent to panelists selected at random from the base sample. The responding sample is weighted to the profile of the sample definition to provide a representative reporting sample. All figures, unless otherwise stated, are from YouGov Plc. Total sample size was 2,294 adults, of whom 1,133 were current homeowners. Fieldwork was undertaken June 18-20, 2024. The survey was carried out online. The figures have been weighted and are representative of all US adults (aged 18+).