For home shoppers, the Fed’s big rate cut is likely just a small step towards affording a home

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The Federal Reserve gave home shoppers what they hoped for this week: a big rate cut and a signal of more cuts to come

The Federal Reserve gave home shoppers what they hoped for this week: a big rate cut and a signal of more cuts to come.

Even so, aspiring homebuyers and homeowners eager to refinance should temper their expectations of a big drop in mortgage rates from here.

While the Fed doesn’t set mortgage rates, its policy pivot does clear a path for mortgage rates to go lower. But in this case, the Fed’s action was widely anticipated, so rates moved lower well before the cut was even announced.

“We’ve seen the bulk of the easing that we’re going to get already this year,” said Danielle Hale, chief economist at Realtor.com. “I wouldn’t be entirely surprised if mortgage rates ticked up a bit from here before declining again.”

When mortgage rates rise, they can add hundreds of dollars a month in costs for borrowers. The average rate on a 30-year mortgage rose from below 3% in September 2021 to a 23-year high of 7.8% last October. That coincided with the Fed jacking up its benchmark interest rate to fight inflation.

Rates have been mostly declining since July in anticipation of a Fed rate cut. The average rate on a 30-year mortgage is now 6.09%, according to mortgage buyer Freddie Mac. That’s down from 7.22% in May, its peak so far this year.

Even a modest drop in mortgage rates can translate into significant savings over the long run. For a home listed at last month's median U.S. sales price of $416,700, a buyer in Los Angeles who makes a 20% down payment at the current average mortgage rate would save about $312 a month compared to the cost of buying the same home in May.

While lower rates give home shoppers more