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The Federal Reserve of the United States announced Wednesday it would be cutting benchmark interest rates from their two decade high of 5.25% to 5.50% in an effort to spur economic growth. The 50 bps cut is the first rate cut from the board responsible for U.S. monetary policy since the COVID-19 pandemic, and one that was even larger and more aggressive than many were expecting.

A small cut was likely already priced into the market, but the larger than expected cut could also push mortgage rates down even further. Many experts believe we’ve already hit peak interest rates, which pushed mortgage rates into the low 8% rate for a conventional 30-year fixed-rate mortgage in some markets.

Jerimiah Taylor, the Chief Real Estate and Mortgage Officer at Movoto, believes we could see mortgage rates under 6% this year, the lowest reading since September 2022.

Jerimiah Taylor, Movoto’s Chief Real Estate and Mortgage Officer

“This is a bigger cut than what the market already priced in,” Taylor said. “As a result, I think we’ll likely see some more slight downward movement in mortgage rates. Conventional rates under 6% before the end of year are almost certain if the Fed maintains this pace, and even sooner than expected.”

“We’ve seen peak interest rates,” added Taylor. “They peaked in October of 2023 at 7.9% and they’ve been on a slow grind down.”

When The Fed raises or lowers its benchmark rate, it directly impacts short term interest rates, but it also influences long term rates, specifically the 10 year treasury yield. Mortgage rates tend to fairly closely follow the 10 year treasury yield because investors often see them both as safe long term investments.

As of last week, the average rate of a 30-year fixed-rate mortgage was reported to be 6.20%, according to the weekly mortgage survey from Freddie Mac. Factoring in typical seasonality which sees home price appreciation cool in the back half of the year, the near-term will likely be one of the most affordable times to buy a home in the next year.

If the Fed continues to cut rates meaningfully over the next 6 to 12 months, expect a deluge of buyers to hit the market, according to Taylor. If that happens, we could see the most robust real estate market we’ve seen since 2021, driving up competition and increasing home price appreciation.

Recent data shows that right now, conditions are generally favorable for buyers — with both inventory climbing and home price appreciation cooler than it has been in years past. A small change in mortgage rates could further that affordability at least in the near future.