Good news for consumers who have been waiting for mortgage rates to fall to enter the housing market: Interest rates have declined for the fourth consecutive week to the lowest levels in over a year. Just two years ago, in October 2023, 30-year mortgage rates were nearing 8% — that’s compared with below 6.5% currently.
Lower interest rates have spurred an increase in applications for both purchase and refinance mortgages, according to the Mortgage Bankers Association, an industry trade group.
“Refinance activity remains a bright spot this fall, with activity increasing 111% compared to year-ago levels,” said Bob Broeksmit, MBA’s president and CEO, in a statement. “Households who bought homes in recent years when rates were higher are now eager to lower their monthly mortgage payment.”
Indeed, recent homebuyers may have the opportunity to lower their mortgage rate by half a point or more, which can result in substantial monthly savings. But those who are waiting for rates to fall even lower in the wake of the Federal Reserve’s October rate cut may be disappointed to hear that rates may not have room to drop much lower.
[SEE: Current Mortgage Refinance Rates]
Fed: December Rate Cut Not a ‘Foregone Conclusion’
First things first, it’s important to understand that the Federal Reserve doesn’t set mortgage rates. The Fed’s benchmark federal funds rate is a short-term, overnight financing rate, while long-term mortgage rates follow the yield on 10-year Treasury bonds.
Many factors influence bond yields and the mortgage rates that follow, such as overall economic growth, inflation and future Federal Reserve policy direction. If markets anticipate a rate cut, mortgage lenders will often “price in” that rate cut by offering lower rates before the decision is officially announced.
In 2024, mortgage rates declined to their lowest levels in the run-up to the Federal Reserve’s rate cuts, then increased slightly after the rate cuts took effect.
This year is a bit different, notably because the Trump administration initiated sweeping changes to fiscal policy that have had tangible impacts on the economy. Whereas the job market was slowing but stable in 2024, the employment picture is weaker in 2025 amid layoffs in both the public and private sectors. Of course, tariffs have also had an effect on inflation and consumer spending, both of which influence interest rates.
Amid so much economic volatility, Fed officials are moving forward cautiously. Most economists still expect a rate cut in December, but Fed Chair Jerome Powell said after the rate cut on Oct. 29 that “a further reduction in the policy rate at the December meeting is not a foregone conclusion. Far from it. Policy is not on a preset course.”
This more hawkish sentiment sent bond yields and mortgage rates higher, pretty much immediately after Powell uttered the words.
In the meantime, the next Fed meeting is six weeks away. A lot could happen in this economy between now and then. If the data shows that inflation is slowing or the job market is weakening further, the Fed may have renewed reason to cut rates in December. But if the data is unclear — or if the government shutdown leads to a prolonged absence of good data — then Fed policymakers may not feel the urgent need to continue easing their monetary policy.
Put simply, mortgage rates could increase or decrease in the last few months of the year. But as of right now, mortgage rates are much, much lower than they were weeks, months or years ago.
[Read: Best Mortgage Refinance Lenders.]
More from U.S. News
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Falling Mortgage Rates Spur Refinance Boom — Is It Time to Refi?
Mortgage Rates Fall to Yearly Lows. Can It Last? originally appeared on usnews.com
