Will a Fed Rate Cut Lower Mortgage Rates—and What Happens Next for Buyers and Sellers?

Will a Fed Rate Cut Lower Mortgage Interest Rates?

It’s a question that comes up in nearly every real estate conversation—especially as headlines buzz with speculation about upcoming Federal Reserve moves. And while it’s true that rate cuts often influence mortgage rates, the relationship isn’t quite one-to-one. Let’s break it down.

In 2024, the Fed lowered rates three times—September, November, and December. After the September cut of 0.5 percentage points, mortgage rates dipped briefly to 6.12% in October. But in early 2025, those same rates rebounded, averaging between 6.7% and 6.9%. Why?

The Factors Behind the Mortgage Rate Equation:

1. The Fed Funds Rate ≠ Mortgage Rates Directly
   The Fed sets the federal funds rate—the rate at which banks lend to one another overnight. Lowering this rate can reduce banks' borrowing costs, leading to lower interest offered to consumers on things like credit cards and auto loans… and possibly mortgages.

2. Mortgage Rates Follow the 10-Year Treasury Yield
   Mortgage rates are more closely tied to the yield on the 10-year U.S. Treasury bond. If investors feel uncertain about growth or inflation, they may buy Treasuries, driving yields (and mortgage rates) down.

3. Inflation Fears Can Undercut a Rate Cut
   If a Fed rate cut triggers inflation—or if external pressures like tariffs drive up costs—lenders may actually increase mortgage rates to protect against future dollar devaluation.

4. The Economic Backdrop Matters
   Unemployment, economic growth, and consumer spending all affect rates. A strong economy could keep rates elevated even if the Fed cuts its rate again.

5. Investor Sentiment Drives the Market
   Markets are forward-looking. If investors believe the Fed is making the right move for long-term stability, rates could decline. But uncertainty or doubt can stall that optimism.

6. Mortgage Demand Influences Lender Behavior
   If buyer activity picks up quickly after a rate cut, lenders might hold steady on rates or even increase them slightly to manage the influx of demand.

What Happens If Mortgage Rates Do Drop?

If the Fed lowers rates and mortgage rates follow, here’s what we may see in the housing market:

• Buyer Demand Will Likely Spike.
  A half-point drop in rates can significantly increase affordability, drawing both new buyers and sidelined ones back into the market.

• Home Prices May Rise Again.
  More buyer competition means sellers may receive multiple offers. In areas like Westlake Village, Thousand Oaks, and Lake Sherwood—where inventory is tight—this could drive prices upward.

• Faster Market Activity.
  Homes could sell faster, and days on market could shorten. Well-prepared, well-marketed listings will stand out—and sell for more.

• Investors May Reenter Aggressively.
  Lower rates mean better leverage for investors, who may jump back in and add competitive pressure to an already thin inventory.

Bottom Line:

A Fed rate cut may bring mortgage rates down—but it’s not a guarantee. What is certain: when consumer debt gets cheaper, confidence grows, and money flows into the market. That benefits real estate, but it can also reignite bidding wars.

If you're thinking about making a move, now is the time to prepare. Whether you're selling a home or considering a smart investment, being positioned early—before the market heats up again—is key to maximizing your outcome.

Call to Action:

At Avant ONE Real Estate, we do real estate differently.
We monitor the macroeconomic shifts that affect your micro-market—so you’re not left guessing. With our exceptional marketing, negotiation expertise, and full-service approach, you’ll be positioned to win in any market.

📞 Call us today at 805.494.4663 to discuss how today’s rates and tomorrow’s trends could impact your next move.