Market Matters: From the Fed to Your Front Door

Mimi Hopkins
17 hours ago
4 min read

Whether you're a homeowner, investor, or someone waiting to jump into the real estate market until things cool down, two of the most commonly asked questions are: what's happening in the real estate market? And what's happening with interest rates? That's why we wanted to bring you a special "Market Matters" edition of our newsletter - because there's a lot going on that you need to know about!

If you prefer the highlights, here's a quick summary:

Mortgage rates remain in the mid-6% range, down from the 2023 peak of 7.8% but well above 2021’s historic 2.65%.
The Fed is expected to cut rates at their upcoming September meeting - markets are watching closely.
Lower rates could bring more buyers and sellers into the market, shifting prices and competition.

👉 What this means for you: Shifting conditions can create great opportunities for both buyers and sellers. Contact us today - let’s start planning your strategy now so you’re ready when the market moves in your favor.

Where Rates Are Today

30-Year Fixed Rate Mortgage Averages:

2021 - pandemic low: 2.65%
2023 - peak: 7.8%
2024 - average: high 6% - low 7%
Today: National average is 6.57%, with our go-to local lenders offering 6.375% for well-qualified buyers

Lower rates encourage market activity, competition, and increased home values. Higher rates cool demand, increase buyer negotiating power, and often lead to prices plateauing or even decreasing in some areas.

👉 For perspective: A $1 million home at 2.65% carried a monthly payment of about $4,000. At 7.8%, that same home would cost about $7,200/month - an 80% increase in monthly payments! Even small percentage swings can dramatically impact buyer behavior.

Why Interest Rates Change... and Who Controls Them

The Federal Reserve (“The Fed”) is the United States’ central bank. It manages the nation’s money supply, sets monetary policy, and regulates banks while aiming for national economic stability.

The Federal Open Market Committee (FOMC) is the part of the Fed that meets eight times a year to set interest rate targets and guide U.S. monetary policy.

The Fed and the FOMC have two main tools that influence interest rates and the housing market:

The Federal Funds Rate (“Federal Reserve interest rate”): This is the rate that banks charge each other for overnight loans of excess reserves, set as a target rate by the FOMC. This is more closely linked with short-term loans and adjustable-rate mortgages.
1. Raised rates → raised borrowing costs for adjustable-rate mortgages, credit cards, and other short-term loans
2. Lowered rates → borrowing can get cheaper, potentially putting downward pressure on long-term mortgage rates (if inflation is controlled).

Open Market Operations (OMOs): The Fed buys or sells U.S. Treasury securities and other government- or mortgage-backed assets to influence the supply of money in the banking system. This is more closely linked with the bond market and long-term loans such as 15- and 30-year fixed rate mortgages.
1. Buying securities (“quantitative easing”) → increases money supply, raises demand for bonds, and lowers returns - which can help bring down long-term interest rates (like mortgages)
2. Selling securities (“quantitative tightening”) → decreases money supply, lowers demand for bonds, and increases returns - which can push long-term interest rates higher

What's Next for Rates?

According to the FedWatch Tool (CME) → There is currently close to a 90% chance that the Fed will ease up on the Federal Funds Rate at the next meeting on September 17, 2025, and an over 90% chance they will ease up in subsequent meetings, with a possibility of 3 cuts before the end of 2025. The Fed's moves will depend heavily on inflation and employment data in the coming months.

👉 An important reality check: Lowering the Fed Funds Rate doesn't always mean mortgage rates drop right away.

When the Fed cut rates three times in a row last year, 30-year mortgage rates actually went up! Why? Bond investors feared inflation - another important factor in interest rates - so they demanded higher returns, pushing long-term mortgage rates higher even as the Fed Funds Rate was falling.

For example, see the graph below of the Federal Funds Rate vs. the 30-Year Mortgage Rate. The two clearly trend together, but not perfectly - long-term mortgage rates respond more directly to bond yields and investor expectations about inflation.

**Graph: Federal Funds Rate (blue line) vs. Average 30-Year Mortgage Rates (yellow line)**

How Fed Moves Could Impact the Real Estate Market

If the September FOMC meeting results in a lower Fed Funds rate and bonds purchases to ease rates, then - as long as inflation stays in check - 15- and 30-year mortgage rates could soften.

What this might mean -

More Buyers: There’s no debate that lower interest rates will encourage potential home buyers to get off the fence. It may encourage investors to move forward with purchases as well.
More Sellers: Since the Fed cut interest rates to an unprecedented 0% during the pandemic, many homeowners locked in record-low mortgages and have been reluctant to sell. Softer rates could motivate some of these owners to list their homes, leading to an uptick in the low inventory we have seen recently.
Prices: If inventory grows faster than demand, prices could soften or even decline. However, history shows that buyer demand often outpaces new listings in these situations - which could keep prices steady or even push them higher.

Signs of Activity

Mortgage applications have risen for 18 straight weeks compared to last year - a possible early indicator of more sales activity in the months ahead. Pending home sales data typically lags by 2-3 months, so applications offer a "sneak peek" at market momentum.

Additionally, Chairman Powell's recent comments at the Fed's Jackson Hole Symposium were well received by markets. The S&P 500 rose after he signaled support for potential rate cuts, reinforcing that markets are watching closely for what's ahead.

The Bottom Line The Fed's September meeting could set the tone for the rest of 2025. If rate cuts begin - and inflation stays in check - we may see a livelier market with more movement from both buyers and sellers.

Shifting conditions can create great opportunities for both buyers and sellers. Whether you're planning to move now or later, let's build your strategy so you're ready when the market moves. Reach out anytime - we're here to answer your questions and help you create a clear game plan.