Mortgage rates just fell to their lowest in nearly a year after the Fed’s rate cut. Learn what it means for homebuyers, refinancing, and the housing market.
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Mortgage Rates Haven’t Been This Low in Nearly a Year. Thank the Fed — But Not Entirely
Introduction
Mortgage rates are tumbling, offering a rare break for homebuyers and homeowners after years of rising borrowing costs. According to Freddie Mac, the average 30-year fixed mortgage rate fell to 6.26% for the week ending September 18, down from 6.35% the week prior. That marks the lowest level in nearly a year and the fourth straight week of declines, fueled by the Federal Reserve’s recent quarter-point rate cut.
But experts warn the story isn’t as simple as the Fed pulling the strings — other market forces are at play.
Mortgage Rates Slide as the Fed Cuts Rates
- Current 30-year fixed rate: 6.26%
- Previous week: 6.35%
- Driver: Fed’s quarter-point rate cut + anticipation of further easing
The Fed’s move to cut rates this week is sparking momentum in the housing market, especially in refinancing.
- Refinance applications surged nearly 60% compared to the previous week, according to the Mortgage Bankers Association.
- Many homeowners who locked in higher rates in recent years are rushing to refinance, hoping to save hundreds on monthly payments.
Why Mortgage Rates Don’t Just Follow the Fed
While the Fed’s policy decisions have influence, mortgage rates track the 10-year Treasury yield, which reflects investor expectations for inflation and economic growth.
- After the Fed’s cut, the 10-year yield dipped, then quickly climbed higher, showing investor uncertainty.
- That volatility flows directly into mortgage rate movements.
👉 As Rocket Mortgage’s Bill Banfield explained:
“Mortgage rates are forward-looking, and by the time the Fed announces a cut, markets have usually already priced it in.”
In short, mortgage rates may not fall much further in the near term.
The Rise of Adjustable-Rate Mortgages (ARMs)
With uncertainty about future borrowing costs, more buyers are turning to adjustable-rate mortgages (ARMs).
- Highest ARM share since 2008, according to MBA.
- ARMs start with lower initial rates but reset after 5–10 years.
- Risk: If rates climb later, monthly payments could jump significantly.
This shows borrowers are betting on future declines in rates — a gamble that could backfire if inflation rebounds.
A Slowing Economy Could Dampen Housing Demand
Lower mortgage rates don’t automatically mean more buying activity.
According to Zillow economist Orphe Divounguy:
- Economic uncertainty slows mobility. Buyers, sellers, and renters stay put during downturns.
- Seasonal slowdown: Fall and winter typically bring less housing activity.
Even Fed Chair Jerome Powell acknowledged that the biggest housing challenge is beyond the Fed’s reach — a nationwide shortage of homes for sale.
“There’s a deeper problem here… and that is just a pretty much nationwide housing shortage,” Powell said.
This shortage keeps home prices elevated, limiting affordability gains from lower mortgage rates.
FAQs
Q1: What is the current average mortgage rate?
The average 30-year fixed mortgage rate is 6.26%, the lowest in nearly a year.
Q2: Why are mortgage rates falling now?
Rates have declined due to the Federal Reserve’s quarter-point cut and shifts in the 10-year Treasury yield.
Q3: Will mortgage rates keep going down in 2025?
Experts say rates may remain flat in the short term since markets already priced in the Fed’s cut. Longer-term trends depend on inflation and economic growth.
Q4: Should I refinance my mortgage now?
With rates at a one-year low, refinancing could save money for homeowners with older, higher-rate loans. However, borrowers should weigh closing costs.
Q5: Why is the housing market still unaffordable despite lower rates?
A nationwide housing shortage continues to drive home prices higher, offsetting some benefits of falling mortgage rates.
Conclusion
Mortgage rates have fallen to their lowest level in nearly a year, sparking a wave of refinancing and renewed interest from buyers. Still, with Treasury yields, inflation, and housing supply shortages shaping the market, rates may not drop much further in the near term.
👉 What do you think — will lower mortgage rates finally boost home affordability, or will housing shortages keep prices out of reach? Share your thoughts in the comments!