As September rolls in, the spotlight is back on the Federal Reserve (the Fed) and their much-anticipated decisions on the Federal Funds Rate. There's a growing expectation that the Fed will reduce the rate at their upcoming meeting, largely driven by signs of easing inflation and a cooling job market. This shift could have a significant impact on the housing market, and even more importantly, it could affect you as a current homeowner or potential homebuyer here in Brookings, South Dakota.
Mark Zandi, Chief Economist at Moody’s Analytics, summed it up perfectly when he said:
“They’re ready to cut, just as long as we don’t get an inflation surprise between now and September, which we won’t.”
But what does this mean for the local real estate market in Brookings, and how does it affect you? Let's break it down.
Why the Federal Funds Rate Matters to Homebuyers and Sellers
The Federal Funds Rate isn’t the same as mortgage rates, but they are closely related. A variety of factors influence mortgage rates—such as the health of the economy, geopolitical events, and inflation trends—and the Federal Funds Rate is one of the biggest ones.
When the Fed decides to cut this rate, it signals what's happening in the broader economy, and mortgage interest rates often follow suit. While a single rate cut won’t make mortgage rates plummet overnight, it could contribute to the gradual decline that’s been taking place.
According to Mike Fratantoni, Chief Economist at the Mortgage Bankers Association (MBA):
“Once the Fed kicks off a rate-cutting cycle, we do expect that mortgage rates will move somewhat lower.”
The key here is that the Fed isn’t likely to just make one cut and call it a day. As Lawrence Yun, Chief Economist at the National Association of Realtors (NAR), notes:
“Generally, the rate-cutting cycle is not one-and-done. Six to eight rounds of rate cuts all through 2025 look likely.”
What Does This Mean for Mortgage Rates?
So, what’s the outlook for mortgage rates through 2025? Experts agree that the Federal Funds Rate cuts will contribute to a steady decline in interest rates. The most recent projections from Fannie Mae, MBA, NAR, and Wells Fargo reflect this gradual downward trend, which means good news is on the horizon for both homebuyers and sellers.
With improving inflation and signs of a slowing job market, the expected cuts from the Fed should help bring mortgage rates down. While we’re not talking about a massive drop overnight, a gradual decline can still have a significant impact on your home-buying or selling journey.
1. Easing the Lock-In Effect for Sellers
One major way these potential cuts could help homeowners is by alleviating the “lock-in effect.” This happens when current homeowners feel stuck in their homes because they secured a much lower mortgage rate in the past. With today’s higher interest rates, many homeowners are hesitant to sell, fearing they’ll end up paying more for their next home.
A moderate reduction in mortgage rates could make the idea of selling your home a bit more attractive, especially for those who’ve been on the fence. However, it’s important to note that we’re not expecting a massive influx of new listings. Most homeowners will still be cautious about giving up their existing low-rate mortgages.
2. Boosting Buyer Activity
On the flip side, lower mortgage interest rates are great news for buyers. If you’ve been waiting for a more affordable time to buy a home in Brookings, this could be your moment. Lower rates mean a reduced cost of borrowing, making homeownership more accessible and affordable.
With mortgage rates trending downward, more buyers may feel confident enough to jump into the market, increasing overall activity and making it a good time to consider your next move—whether you're buying or selling a home.
What’s the Next Step?
While we don’t expect the Fed’s actions to result in drastically lower mortgage rates, the gradual reduction is likely to make the housing market a little more favorable for both buyers and sellers.
It’s important to remember, though, that waiting for the “perfect” market conditions is nearly impossible. As Jacob Channel, Senior Economist at LendingTree, wisely notes:
“Timing the market is basically impossible. If you’re always waiting for perfect market conditions, you’re going to be waiting forever. Buy now only if it’s a good idea for you.”
If you’re ready to explore your options, whether buying or selling, it’s always best to connect with a local real estate expert who can guide you based on the current trends. Here in Brookings, that’s where the Brookings Home Team comes in.
Bottom Line
As we move through the rest of the year and into 2025, the anticipated Federal Funds Rate cuts should contribute to a steady, gradual decline in mortgage rates. This is good news for both homebuyers and sellers in Brookings, South Dakota, as it may open new opportunities and create a more favorable real estate market.
Whether you’re thinking of buying your first home or selling your current one, now is the time to stay informed and prepare to make your move. Reach out to me, Shane Andersen, at the Brookings Home Team—we’re here to help you navigate this changing market with confidence.
Posted by Shane Andersen on
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