Market Outlook: Will September’s Fed Rate Cut Actually Lower Mortgage Rates?
Hi Friends!
The Federal Reserve is widely expected to cut interest rates in September, but for mortgage borrowers hoping for significant relief, the cut alone may not be enough. Unless inflation continues to cool, the bond market, which directly influences mortgage rates, could simply absorb the news without moving rates meaningfully lower.
Are Markets Already Pricing in a Cut?
Possibly. Over the weekend, Fed Governor Michelle Bowman signaled her support for three rate cuts this year, totaling 75 basis points, citing:
Unemployment hovering just below 4.3%
Slowing job growth, averaging 35,000 jobs over the past three months
Anticipated downward revisions to June and July job data
The risk of economic damage if the Fed waits too long to act
Fed Chair Search Intensifies
The Wall Street Journal reports that ten candidates are in the running to replace Jerome Powell as Fed Chair. New contenders include former St. Louis Fed President James Bullard and Bush administration adviser Marc Sumerlin, alongside names already in the mix like Kevin Warsh, Kevin Hassett, Christopher Waller, Adriana Kugler Miran, and Bowman herself. Regardless of the political maneuvering, one fact seems clear: the next chair will likely be someone open to cutting rates.
CPI Report in Focus
The July Consumer Price Index (CPI) report, a key driver for mortgage rate movements, will be released Tuesday. Expectations are:
Headline CPI: Projected at 0.16%–0.20%, holding annual inflation near 2.7% or edging up to 2.8%.
Core CPI: Forecasted at 0.24%–0.30%, which could push annual core inflation from 2.9% to 3.0%.
Shelter Costs: The largest CPI component. If the softness seen last month continues, it could help contain inflation.
Also on this week’s agenda: the OPEC monthly report, Producer Price Index, retail sales data, consumer sentiment, and multiple Fed speakers.
Bottom line: Cooler inflation readings would increase the likelihood that September’s cut will translate into lower mortgage rates. Hotter readings could keep rates anchored where they are.
Mortgage Market Watch: Fannie Mae & Freddie Mac Privatization Proposal
The Trump administration is reviving its earlier plan to merge and privatize Fannie Mae and Freddie Mac, the government-sponsored enterprises that have been under federal control since their 2008 bailout. Investor Bill Ackman has long pushed for their consolidation into a single entity, informally dubbed the “Great American Mortgage Corporation” with the goal of cutting costs and lowering mortgage rates.
Key details:
Potential IPO Valuation: Up to $500 billion, possibly the largest in history
Government Stake: The U.S. Treasury still holds $340 billion in preferred shares
Capital Shortfall: Fannie is $33 billion short of required reserves, Freddie $162 billion short
Rate Impact Risks: A Federal Reserve study warns privatization could raise mortgage rates by 0.50–1.00% if investor risk premiums increase
Proponents argue a merged, private entity could streamline oversight, reduce operating costs, and pass savings to borrowers. Critics caution that reduced government backing could increase borrowing costs and limit support for affordable housing.
Affordability Trends: Buyers Gaining Leverage in Select Markets
Nationally, buyers now need an income of $112,131 to afford a median-priced U.S. home at $447,035, only 0.5% higher than last year. But in some metros, income requirements have actually fallen:
Oakland, CA: Largest improvement in the nation, with required income down 4.6% year-over-year to $244,073.
Buyer Advantage: In slower markets like Phoenix, sellers are offering $10,000–$15,000 in closing cost credits, and homes in less-than-pristine condition are sitting longer.
California Still Costly: San Jose tops the list at over $323,000 in required income, followed by Los Angeles ($271,500), San Francisco ($235,300), and San Diego ($234,700). Sacramento is more affordable at $151,700, but still far above national norms.
While some relief is emerging, only about one-third of U.S. listings are affordable to the typical household. Premium features like landscaped yards and pools are losing some pricing power as buyers focus more on monthly payment than extras.
What This Means for You
If September’s rate cut coincides with cooler inflation, we could see the most meaningful drop in mortgage rates since early 2023, improving affordability heading into the fall. If inflation remains sticky, the cut’s impact on rates could be minimal.
In the meantime, shifting market conditions in some metros are creating opportunities for buyers to negotiate stronger terms.
If you’re considering buying or selling, now is the time to prepare. Let’s connect to review your options, run the numbers, and position you to take advantage of the market when the timing is right.