The Federal Reserve has announced another interest rate cut, lowering rates by a quarter percentage point at its latest meeting, bringing them down to a range of 4.25% to 4.5%. This decision aligns with forecasts made by many economists.
In its rationale for the cuts, the Fed noted signs of economic expansion and a relaxation in the labor market following previous reductions. This latest adjustment marks the third interest rate cut this year, though analysts do not anticipate a similar pace of cuts in 2025.
“The median expectations among members now indicate only two rate cuts in 2025, projecting the federal funds target to settle at 3% in the long term,” stated Mike Fratantoni, Senior Vice President and Chief Economist at the MBA. “We forecast that the federal funds rate will fall only to 3.75% during this cycle.”
The current unemployment rate remains low, and inflation is steadily moving toward the Federal Reserve’s target of 2%—factors that played a significant role in the decision to cut rates. Fratantoni remarked, “Despite an uptick in unemployment over the past year and a downward trend in inflation, the recent months have shown inflation reaching a plateau.” The meeting witnessed some dissent, notably with one member advocating for the maintenance of current rates.
With this most recent cut, the Federal Reserve aims to make progress towards its inflation objectives while also easing unemployment concerns.
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Forecast for Home Sales in 2025
The housing market has experienced considerable fluctuations throughout the year, but experts anticipate an uptick in home sales in 2025. Real estate analysts foresee a gradual easing of mortgage rates, potentially allowing buyers who have historically been priced out to re-enter the market.
Indicators in the housing sector are aligning more closely with historical averages. Although listings are still below pre-pandemic levels, there has been a notable increase since March when listings were down by 25%, as reported by Zillow.
However, potential buyers should not expect an entirely smooth buying experience in 2025, as conditions are projected to resemble the volatility seen in 2024.
“We anticipate a sense of déjà vu for 2025, with mortgage rates slowly improving, subsequently resulting in more opportunities for buyers, albeit with likely challenges along the way,” cautioned Skylar Olsen, Chief Economist at Zillow.
Individuals looking to move during the quieter winter season might find themselves in a favorable position. Many sellers, having waited for a drop in rates, may be more inclined to sell as interest rates decline.
“Those shopping this winter will have ample time to make choices, putting them in a strong negotiating position,” Olsen added.
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US JOBS GROWTH UNDERSTATED BY 818,000 JOBS THIS YEAR
Expected Variability in Mortgage Rates and Home Prices
While an increase in listings may be anticipated, buyers should brace for the possibility of fluctuating mortgage rates. Home prices are not expected to decrease significantly in the near future, with a projected rise of 3.7%, according to Realtor.com.
Mortgage rates are expected to hover around 6%, with variations expected throughout the year, similar to what was observed in 2024. As improvements emerge, listings for single-family homes are anticipated to increase by nearly 14%, according to Realtor.com.
In highly sought-after areas, sellers are likely to retain favorable negotiating power in 2025. Although inventory is improving, it remains comparatively limited, giving sellers an edge in price negotiations.
The impact of the new presidential administration on the housing market’s recovery remains uncertain, but there is speculation about a potential “Trump Bump,” as indicated by Realtor.com.
“President-elect Trump could quickly implement some regulatory changes, but significant shifts in housing policy, including tax reforms and deregulation, may require broader collaboration between governmental branches,” noted Danielle Hale, Chief Economist at Realtor.com.
“The extent of a potential Trump bump will hinge on which campaign proposals evolve into actual policy and when. For the moment, we foresee a gradual enhancement of housing market dynamics driven by overarching economic factors. The impact of the new administration’s policies could either facilitate or hinder this recovery, with the specifics being crucial,” Hale said.
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FHFA ANNOUNCES HIGHER MORTGAGE LOAN LIMITS FOR 2025
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