Here's the home equity loan interest rate forecast for October

Will Mortgage Rates Drop in October? Here's What Experts Say

On September 18, 2024, the Federal Reserve announced a 50 basis point cut to the federal funds rate. For homebuyers faced with record-high mortgage rates in the post-pandemic era, this was welcome news. Many had been prepping for a rate cut in hopes mortgage rates would fall after the September Fed meeting. Those readying themselves for cheaper home loans were given reason for optimism when the Fed delivered a larger-than-anticipated rate cut.

Still, the big question for most buyers is whether the Fed's moves will push current mortgage rates low enough so they can finally buy a home with affordable monthly payments. Mortgage costs had already begun dropping in anticipation of the Fed's actions and are down over a point from the post-pandemic highs — but are still higher than during the pandemic and in the years leading up to it.

Will Mortgage Rates Drop in October Without a Fed Meeting?

For would-be homeowners focused on the Fed, it's important to realize the central bank doesn't play as big a role in driving borrowing costs as some buyers might think.

"The Fed funds rate is not directly tied to mortgage rates, so we don't need the Fed to announce another rate cut in October to see rates continue to decline."

— Sarah Alvarez, VP of Mortgage Banking, William Raveis Mortgage

"Mortgage rates can and do move without a big decision by policymakers. Mortgage rates move on a day-to-day basis based on economic data and investor sentiment."

— Ali Wolf, Chief Economist, Zonda

Wolf believes that since economic data is likely to come in muted, rates are likely to continue trending downward in October.

"If inflation continues to show signs of cooling we will likely see rates continue to decline."

— Sarah Alvarez, VP of Mortgage Banking, William Raveis Mortgage

"Right now, the economy is running pretty strong but if labor market conditions weaken considerably, that could lead to a more sizable drop in interest rates."

— Lisa Sturtevant, PhD, Chief Economist, Bright MLS

Anticipation of Future Fed Action Could Cause Rates to Fall

"The expected Fed rate cut this week has already been largely baked into mortgage rates, which have been falling since July. An expectation of a rate cut by the Fed in November could actually cause mortgage rates to fall in October in anticipation."

— Lisa Sturtevant, PhD, Chief Economist, Bright MLS

Alvarez agrees that when the Fed is hawkish about future rate cuts, this positively impacts the mortgage market. The central bank signaled another half-point rate decrease is likely this year.

Buyers Shouldn't Wait for a Rate Cut to Act

While all available evidence suggests rate cuts are a likely outcome in October, there are no guarantees — and there are some risks worth considering.

"Many homebuyers have been waiting on the sidelines for rates to fall. If there is a surge in mortgage demand in October, mortgage rates could actually be pushed up a bit as lenders respond to that increased demand."

— Lisa Sturtevant, PhD, Chief Economist, Bright MLS

An increase in buyer demand could also put upward pressure on home prices, leaving would-be borrowers in the unfortunate position of facing a more competitive market and higher purchasing costs just as mortgage loans become more affordable. Since buyers can refinance a home loan if rates decline, but can't buy at today's prices if home costs surge, those who have been sitting on the sidelines may want to take advantage of opportunities available now.

The Bottom Line

While a Fed meeting won't happen in October, potential home-buyers could still see important changes in the mortgage and housing market — including a reduction in loan rates. Still, the downside risks of delaying a home purchase in anticipation of future rate cuts may outweigh the upside. Would-be borrowers should seriously consider taking action before a potential home price surge — especially with the Fed signaling rate cuts could continue into 2025.

Originally published on CBS News by Christy Bieber, edited by Angelica Leicht · September 24, 2024.