Financial markets are increasingly anticipating that the Federal Reserve may implement a quarter-point interest rate cut during its upcoming meeting on December 10. The likelihood of such a reduction has surged to approximately 85%, a sharp shift from the more uncertain outlook just a week prior. The recent volatility in expectation can be attributed to the absence of timely economic data following a government shutdown, coupled with the Fed’s dual challenge of managing persistent inflation against a concerning job market.
An influential Fed policymaker recently expressed openness to a cut, thereby prompting markets to adjust their predictions and price in this heightened probability for a December reduction. However, as history demonstrates, expectations about rate cuts can be fluid and responsive to various influences, including economic indicators, investor sentiment, and global events.
Currently, mortgage rates are sitting slightly above a 13-month low, with the average 30-year fixed rate at 6.43%. This marks an improvement compared to October’s 6.35%, and a significant decline from the peak of 7.15% in mid-May. Yet, despite potential Fed rate cuts, the direct correlation between these cuts and mortgage rates remains uncertain. Mortgage rates are not solely determined by the Fed’s benchmark rates but are significantly influenced by broader market dynamics and the bond market, particularly the 10-year Treasury yield.
Past trends reveal that mortgage rates can actually increase following Fed cuts, as was seen after reductions in September and October where rates climbed instead of dropping. With expectations that 30-year rates will remain within the low-6% range through the end of 2025—even potentially dipping just below 6% next year—borrowers are advised to act decisively if they find suitable housing opportunities.
Financial experts emphasize that readiness rather than timing is crucial. A solid credit score, stable income, manageable debt, and sufficient savings for down payments will position prospective home buyers to seize opportunities as they arise. Many industry professionals suggest that buyers should consider purchasing now while rates are favorable and then refinancing later if rates decrease. This approach allows buyers to navigate the unpredictable market while ensuring they are prepared for a successful investment when the right home comes along.