Mortgage rate scenarios to watch following a likely Fed rate cut

By Jeff Ostrowski Bankrate com Nearly everyone thinks the Federal Reserve will cut interest rates this week That sentiment has translated to falling mortgage rates Last week the average -year fixed rate dropped to according to Bankrate s national survey of lenders Rates haven t been this low in nearly a year Related Articles Amid bankruptcy chosen Publishers Clearing House winners are facing the end of forever prizes Ford to drop up to jobs at German plant as demand for electric cars in Europe lags forecasts Terrorism charges tossed Ticker Trump extends TikTok shutdown deadline Republicans unveil a bill to fund the governing body through Nov Parents of teens who died by suicide after AI chatbot interactions to testify to Congress These lower rates reflect growing sphere optimism that the Federal Reserve is likely to cut rates at its next meeting on Sept with further cuts expected through the end of the year says Samir Dedhia CEO of One Real Mortgage An pivotal note Mortgage rates are dictated not by central bank plan but by a complex array of factors including -year Treasury yields and demand for mortgages among the investors who buy home loans Reflecting signs of a slowing market system -year Treasury rates in the past few days flirted with well below the levels seen earlier this year Even so the economic content remains decidedly mixed The Labor Department s August jobs description came in weaker than expected setting the stage for the Fed to cut rates However the August inflation record communicated a different story price increases accelerated to moving further away from the Fed s target and arguing against a rate cut But if the Fed does cut rates by a quarter-point as expected what will happen to mortgage rates Alas it s not an easy question to answer but here are various scenarios of how things could play out Scenario Mortgage rates rise We ve seen this movie before When the central bank cut its benchmark rate last year mortgage rates rose In mid-September the average rate on -year loans was according to Bankrate s national survey Then the Fed cut rates at three meetings in a row cumulatively lowering its benchmark rate by a full percentage point How did mortgage rates respond They defied the Fed and shot up rising above That disconnect between the federal funds rate and mortgage rates suggests that even if the central bank trims rates twice this year as majority observers expect mortgage rates could head back toward Last year mortgage rates zigged while Fed approach zagged a clear reminder that the Fed doesn t set mortgage rates If latest history repeats itself then the coming cut has already been built into mortgage rates and they ll go up from here especially given the surprising stubbornness of inflation The consumer price index CPI has been held aloft in part by President Donald Trump s tariff policies I expect rates to have certain slight upward pressure as the field processes CPI information and the upcoming Fed meeting says Robert J Smith chief economist at GetWYZ Mortgage In this scenario the latest optimism about lower rates swiftly evaporates Scenario Mortgage rates stay the same Perhaps history doesn t repeat itself Maybe mortgage rates settle into the range of to That would be a welcome relief from a latest run of elevated mortgage rates They briefly hit in then spent stretches of and above In this scenario mortgage rates enter a holding pattern as the field makes sense of conflicting economic figures A basis point cut is almost a sure thing and the realm has baked that into the current rate level says Sean P Salter an associate professor of finance at Middle Tennessee State University I look for rates to remain in the current range until we get particular better idea of the true state of the U S commercial sector Much of the latest decline in mortgage rates was spurred by the jobs description that came out in early September It s unlikely that the Fed s move will lead to further declines in mortgage rates says Phil Crescenzo Jr vice president at Nation One Mortgage Corp If this is how the story plays out it s not all bad The contemporary downturn in rates is getting chosen buyers and borrowers off the sidelines The Mortgage Bankers Association s Refinance Index increased in early September from the same week a year ago and its Purchase Index rose according to the deal group s the bulk current record Scenario Mortgage rates fall Another possibility and one that loan officers and real estate agents are hoping for is that mortgage rates keep falling and that the Fed keeps cutting It s a be-careful-what-you-wish-for scenario Mortgage rates generally rise when the economic system is revving and they typically fall when the business activity begins to sputter So declining rates would seemingly follow continued weakness in the job industry Rates at or below wouldn t be bad news in certain corners Certain discouraged homebuyers could decide to get off the sidelines and resume their home searches And several of those homeowners who took mortgages at could refinance into cheaper debt We ve seen a consistent stream of statistics pointing to cooling inflation and a softer labor territory which together create downward pressure on yields says Dr Anthony O Kellum president and CEO of Kellum Mortgage in Roseville Michigan The bond region has already started to reflect this sentiment with investors positioning for the likelihood that the Fed will begin easing later this year That shift in expectations tends to trickle directly into mortgage rates While volatility is inevitably manageable especially if unexpected economic reports surface the overall momentum feels tilted toward slightly lower rates in the near term Bankrate com Distributed by Tribune Content Agency LLC