An upcoming Fed interest rate cut may have implications for homeowners and buyers.

• According to Freddie Mac data, the 30-year fixed rate mortgage dropped from 7.22% on May 2 to 6.78% on July 25.
• It is increasingly likely that the Fed will reduce interest rates, with expectations of further cuts throughout the year.
• Here's what it may mean for homeowners and buyers.

This fall, the Federal Reserve may make its first interest rate cut in years, potentially lowering mortgage rates.

The Fed's decision to cut interest rates could significantly impact the amount a homebuyer pays. As a result, many people in the market for a home are eagerly anticipating this move.

It appears that the Fed is meeting this week, but experts predict that the first rate cut is more likely to occur in September. This would mark the first rate cut since 2020, which coincided with the onset of the Covid-19 pandemic.

Although the CME's FedWatch measure of futures market pricing indicates that there is only a 6% chance of a rate cut at the upcoming Federal Open Market Committee meeting, there is a higher probability of quarter-point reductions occurring in September, November, and December.

Some experts predict that the Fed's benchmark fed funds rate will be below 4% by the end of next year, with further cuts in 2025.

Fixed mortgage rates are largely determined by Treasury yields and the economy, but are also affected by the Fed's policy. As a result, home loan rates have begun to decrease, in part due to the Fed's slowdown.

Here's what homeowners and buyers need to know.

Rate cuts are already priced into the market

Mortgage rates are unlikely to change significantly once the Fed starts cutting back, according to Chen Zhao, the economic research lead at Redfin.

She stated that many of the rate reductions have already been factored into the prices.

According to Freddie Mac data via the Fed, the 30-year fixed rate mortgage decreased from 7.22% on May 2 to 6.78% on July 25.

Refinance now or later?

Zhao stated that refinancing is gradually increasing, although it's not a significant surge, as rates begin to decline.

The Mortgage Bankers Association reported that refinance activity on existing home loans increased by 15% from the previous week, reaching its highest level since August 2022. This was a 37% increase from the same time last year.

The decision to refinance for homeowners depends on their current interest rate, according to Selma Hepp, the chief economist at CoreLogic.

""When mortgages peaked at 8% in the fall of last year, some people originated," Hepp said, adding that there is opportunity for those buyers."

Last year, home insurance premiums increased by 21%.

In order to benefit from refinancing, homeowners need to see a significant decrease in mortgage rates, with the new rate being at least 50 basis points lower than their current rate, experts advise.

LendingTree's senior economist, Jacob Channel, stated that while it can be a good strategy, it's not a "hard and fast rule."

The refinancing of your home will depend on various factors, including your monthly mortgage payment and your ability to cover closing costs, which include an appraisal and title insurance.

"The saving has to outweigh your upfront costs," Zhao explained.

If your current mortgage interest rate is high, you may want to hold off on refinancing until the Fed completes its rate cuts, as rates are predicted to gradually decrease throughout the year and into 2025, according to Zhao.

Consider reaching out to lenders to determine if refinancing now or in the future is the best option for you, advised Channel.

Buy now or later?

Although lower borrowing costs may provide relief for cost-conscious homebuyers, the true impact of this change remains uncertain, according to Zhao.

If mortgage rates decrease, it may not necessarily lead to more buyers entering the market, as other factors such as demand and supply can still impact prices.

The future of the housing market is uncertain due to the potential decline in mortgage rates and the level of supply in the latter half of the year, according to Channel.

"Perfect market conditions are impossible to predict, so don't wait for them," Channel advised. "Buy now if it's a good idea for you."