For the fifth consecutive meeting, the Federal Reserve has decided to leave its benchmark interest rate unchanged. This continued pause follows three rate cuts in late 2024 — half a percentage point in September and a quarter-point each in November and December. The decision has sparked debate, especially with President Trump, who has been vocal about his preference for further rate reductions.
The impact on the housing market remains uncertain. Mortgage rates tumbled ahead of last year's first Fed cut, falling from 8.01 percent in October 2023 to 6.20 percent by September 2024, according to Bankrate. Yet despite the Fed's year-end cuts, mortgage rates climbed again in January 2025, hitting 7 percent. This divergence highlights that the Fed does not directly control mortgage rates. Instead, mortgage markets react to broader economic conditions. "A Fed on hold aligns with our forecast for little change in mortgage rates for the time being," noted Mike Fratantoni, chief economist at the Mortgage Bankers Association.
When inflation peaked in 2022, the central bank aggressively raised rates, sometimes by as much as three-quarters of a point. Those hikes cooled housing activity, slowing sales even as home prices pushed to record highs. Higher borrowing costs have made it more difficult for buyers, while sellers face softer demand. Still, many economists believe mortgage rates could slip even without another Fed cut. Lisa Sturtevant, chief economist at Bright MLS, explains: "A decline in mortgage rates later this summer could give a jolt to the housing market, bringing buyers off the sidelines to take advantage of the dip in rates and expanded inventory."
While Fed policy sets the tone, mortgage rates more closely track the yield on 10-year Treasury notes. This is why rates sometimes move opposite to the Fed's actions. Greg McBride, chief financial analyst at Bankrate, pointed out: "Despite interest rate cuts amounting to a full percentage point by the Federal Reserve in the latter part of 2024, mortgage rates bounded higher. If mortgage rates are going to come down in any meaningful way, inflation needs to resume the downward march to 2 percent."
As of July 30, 2025, the average 30-year mortgage rate stood at 6.75 percent — well below the 8 percent peak in 2023, but still high compared to the historically low levels of 2020–21. Mortgage rates above 6 percent have cooled demand, but prices continue to climb. The National Association of Realtors reported that the nationwide median price for existing homes in June 2025 hit $435,300 — the highest on record. Long-term history suggests rising rates don't stop buyers altogether. Even in the 1980s, when mortgage rates soared to nearly 18 percent, people continued to purchase homes. Today's slowdown appears more like a market correction than a looming crash.
Still, affordability is stretched thin. A $320,000 loan at today's 6.75 percent rate means a monthly payment of $2,076. If rates fall to 6 percent, the same loan would cost $1,919 a month — saving borrowers about $1,800 annually.
Experts say inflation remains the key factor to watch. If inflation keeps easing, mortgage rates are likely to follow. In the meantime, borrowers can take steps to better position themselves:
- Shop around aggressively: Different lenders may offer noticeably different rates and fees.
- Be cautious with ARMs: Adjustable-rate mortgages may look cheaper at first, but the long-term risk of higher payments is significant.
- Tap home equity wisely: For homeowners with low-rate mortgages, a HELOC or home equity loan may make more sense than refinancing into today's higher rates.
The Fed's pause offers stability but not certainty. While mortgage rates may gradually decline if inflation continues its downward path, affordability remains the biggest challenge. For buyers, careful timing and smart loan strategies could make the difference between waiting on the sidelines and stepping into the market.
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