The Federal Open Market Committee, the rate-setting body of the Federal Reserve, voted to cut interest rates by 25 basis points in its December meeting. But those who are waiting for mortgage rates to fall shouldn’t expect a quarter-point drop anytime soon.
That’s because Fed policymakers set the federal funds rate, which is an overnight, short-term financing rate. The vast majority of residential mortgages are long-term, fixed-rate loans, so they won’t be directly impacted by the FOMC’s decision.
Additionally, the mortgage market “already priced in the expected cut” ahead of the announcement, says Jason Obradovich, chief investment officer at the mortgage lender New American Funding.
“The market also currently anticipates two more rate cuts next year, but that will depend on further economic developments,” Obradovich says. “Mortgage rates are also influenced by other factors, so it’s important to take all data into account.”
Still, today’s rate cut does have positive implications for housing, just maybe not in the way you’d expect. And despite the fact that the December Fed rate cut isn’t likely to bring 30-year mortgage rates down, there are still other factors that could send home loan rates lower throughout the end of the year.
[READ: Compare Current Mortgage Rates]
What a Fed Rate Cut Actually Means for Real Estate
While the Fed rate cut won’t send mortgage rates crashing down, it’s still welcome news for the housing market. The central bank’s decision will have a more profound impact on the supply side, since loans and lines of credit for developers more closely follow the federal funds rate.
“Lower short-term rates are helpful for real estate investors, primarily helping short-term financial needs like construction loans,” Al Brooks, vice chair of commercial banking at J.P. Morgan, said in a research note after the FOMC’s September 2025 rate cut.
Cheaper borrowing costs for developers can encourage homebuilding. More housing inventory can help stabilize both rents and home prices, which is important for keeping shelter inflation in check.
December’s rate cut will also benefit those who have a home equity line of credit with a variable rate or an adjustable-rate mortgage. Interest rates on these products, especially HELOCs, are more directly impacted by changes to the federal funds rate.
What Could Really Move Mortgage Rates
The 30-year mortgage rate tracks the yield on 10-year Treasury bonds, not the federal funds rate. So to predict where mortgage rates are headed, forecasters look to the bond market.
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In general, bond yields — and the mortgage rates that follow — tend to be lower in times of economic weakness and higher when the economy is strong. Investors also demand higher bond yields when inflation is rising.
Put simply, stronger-than-expected economic data on inflation or employment could drive mortgage rates higher, while shaky readings could send mortgage rates lower.
The upcoming jobs report from the Bureau of Labor Statistics is more likely to have an outsized impact on mortgage rate trends than the Fed’s rate cut, says Jeff DerGurahian, chief investment officer and head economist at the mortgage lender loanDepot.
“A less hawkish tone from the Fed could provide relief, but the November payroll report on December 16 will likely be the main driver for year-end rate direction,” DerGurahian says in a pre-meeting statement. “A significantly weak jobs number could overshadow inflation data and push rates lower toward 6% as we head into the new year.”
For the time being, 30-year mortgage rates are expected to stay above 6%, with a chance that rates could drop into the high-5% range in 2026. Homebuyers could effectively lock in a rate in the 5% range this year by paying mortgage discount points. Still, it’s important to consider if the long-term interest savings of a mortgage rate buydown will offset the up-front costs.
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Why the Fed Rate Cut Won’t Move Mortgage Interest Rates originally appeared on usnews.com
