Key takeaways: 

• High interest rates have helped slow the economy, but they’ve also walloped the housing market. 
• Interest rates will most likely start coming down over the course of the fall. 
• That will help heal the overall market, while also offering opportunities for buyers sellers, and owners. 

For many people in the housing market, higher interest rates have made things very difficult over the past few years. When rates are high, it’s not just more expensive to buy. It’s also hard to justify listing your home for sale if you’re not sure anyone is going to be able to afford it.  

Some relief may be in sight, however. Financial experts widely expect the Federal Reserve to cut interest rates in September, and possibly again later this year. In this post, we’ll cover what that means for the housing market – and for you. 

What’s going on with interest rates? 

In 2022, with post-pandemic inflation at a 30-year high, the Federal Reserve began raising interest rates. The basis was that when borrowing costs are higher, it’s harder to buy things, which helps dampen demand and bring down inflation.  

Over time, that approach worked. Inflation has come down, but it has been much, much harder to finance everything from college expenses to homes. At the end of 2023, the average 30-year fixed-rate mortgage was near 8%, a shock to many people who were accustomed to seeing rates in the 2% to 3% range. The housing market has, predictably, soured: in 2023, only about 4 million previously owned homes were sold, the lowest since 1995.  

Of course, higher rates also make it less attractive to tap your home equity using many of the traditional mortgage products available from banks and other lenders. 

Now that the Fed has some confidence that inflation has been tamed, it’s likely to start cutting rates as soon as its September meeting. It’s important to remember that the Fed does not control mortgage rates, but that mortgage rates generally follow the path of the interest rates the Fed sets. 

Industry projections 

Here is a summary of what some key industry organizations think will happen with rates. All economic forecasts should be taken with a grain of salt. As economist John Kenneth Galbraith once said, “The only function of economic forecasting is to make astrology look respectable.” And mortgage rates, which depend not only on the economy, but financial markets and housing as well, are even trickier. That’s why we won’t attempt to look beyond 2025. 

Mortgage Bankers Association 

As of July, this mortgage industry group was forecasting that the 30-year fixed will average 6.8% throughout the third quarter and 6.6% throughout the fourth, dropping to 6.4% by the first quarter of 2025. 

Fannie Mae 

The mortgage guarantor expects an average of 6.8% and 6.7% for the 30-year fixed in Q3 and Q4, respectively. Freddie Mac, Fannie’s somewhat smaller counterpart, expects rates to fall below 6.5% in 2025.  

Redfin 

As of Aug. 2, the real estate brokerage was forecasting 6.4%-6.6% rates in Q3, dropping to around 6.0-6.2% by Q4. 

National Association of Realtors 

The real estate agent lobby expects mortgage rates to average 6.9% in the third quarter, and 6.7% in the fourth, according to a forecast published in late June. Throughout 2025, it anticipates an average of 6.4%. 

What does it mean for the housing market? 

In the housing market, lower (but not really low) mortgage rates will mean a slightly stronger pace of activity. More people will be able to afford to buy, although with rates and prices still elevated compared to long-term norms, it’s critical to prepare as much as possible before you start mortgage shopping.  

Sellers, in turn, will have to resist the urge to set prices much higher. That will make it harder to sell, which will encourage more would-be buyers to remain on the sidelines of the market. 

Some economists believe housing activity will really pick up next spring. That would coincide with the start of the traditional “spring selling season,” when a lot of people like to house-hunt in order to move before the start of the following school year. 

What does it mean for current homeowners? 

If you own your home and aren’t interested in selling, slightly lower rates might still be of interest. They might allow you to refinance if you currently have a high interest rate and enough equity in your home. Keep in mind that depending on your lender and the type of loan you have; you may have a waiting period that restricts your ability to refinance for a certain length of time. 

If you’re looking to tap your home equity without selling, an interest rate cut could translate into lower rates on loan-based products designed to let you tap your equity for cash, such as home equity loans, home equity lines of credit and cash-out refinancing.  

Don’t forget that if you do have home equity you’d like to convert into cash, whether for paying down debt, financing education or something else, a home equity agreement (HEA) from Unlock can help you with that no matter what the prevailing interest rates are. Because an HEA is not a loan, it doesn’t carry interest charges, and it doesn’t require you to replace your mortgage to access your home equity. Find out how much you could quality for today.  

Conclusion 

Mortgage rates seem poised to decline slightly over the coming months and into 2025. That could be good news for anyone looking to buy or sell a home. If that’s you, keep a careful eye on the news to make sure you understand what’s going on and what your options are. Good luck!