If we all had a crystal ball… If the Federal Reserve cuts rates at their next meeting, June 16-17, I would expect that it would be very small reduction, 0.25%. And, more than likely, they will hold steady. But again, we can’t predict the future. So, depending on what your situation is you can wait it out and see what happens. Or you can move forward now.
Here’s a bit of information on how the Federal Reserve influences mortgage rates. The Fed does not “directly” impact all mortgage rates. What? True. Instead, it sets what is known as the federal funds rate — what banks charge each other for overnight loans. Fed rate cuts directly affect short-term interest rates, such as on Certificates of Deposit (CDs) and high-yield savings accounts, Home Equity Lines of Credit (HELOCs), and Adjustable-Rate Mortgages (ARMs). These are more sensitive to changes in the federal
funds rate because they are tied to the Secured Overnight Financing Rate (SOFR), a short-term market index. So, if you are planning on applying for an Adjustable-Rate Mortgage, the Fed’s decision on rates will affect you. Now, the more popular fixed-rate mortgages, 15-to-30-year conventional loans, are less directly affected by Fed rate changes. These are largely influenced by long-term economic conditions and the bond market. Particularly the 10 Year Treasury Note which serves as the benchmark for mortgage-backed securities. This is why a Fed rate cut does not automatically lower fixed mortgage rates.
Complicated? Yep, I know. Bottom line, Fed interest rate policy is just one of the factors that can affect the cost of home loans. A range of other issues will play a role in prevailing interest rates, including the rate of inflation, job growth, consumer spending, housing demand, as well as global events and other government policies. Your credit, how much of a down payment you will have to work with, the type of property you’re purchasing, and what type of loan you will be applying for will also have an effect on
what interest rate a bank will offer you.
So, getting back to your question, if you find a home that you like, move forward. The Federal Reserve should not make the final decision for you. If you currently have stable employment, sufficient down payment, decent credit, and are in good health, go buy your new home. Because any of those changes will impact your future ability to purchase a home, more than what the Federal Reserve does or does not do.
