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It’s not easy out there for a homebuyer. Mortgage rates have remained relatively steady, sitting in the upper-6% range this summer, and while home prices have dropped in some areas, it hasn’t been significant enough to improve housing affordability in most of the country.
Still, with another Federal Reserve meeting and new inflation data on the horizon, there’s time for that to change. So, what can we expect for mortgage rates as we head into fall, and what factors will drive the changes to these rates?
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These 4 factors could have a big impact on mortgage rates this fall, experts say
Here are the factors that could have a big impact on mortgage rates this fall, experts say.
The Federal Reserve
The Federal Reserve is one of the biggest influencers when it comes to the trajectory of mortgage rates, but not in the manner you might expect.
“When the Fed hikes or lowers the federal funds rate, it influences all rates across the economy, but Fed funds rate moves don’t directly impact mortgage rates,” says Jeff Taylor, founder and managing director at Mphasis Digital Risk and board member for the Mortgage Bankers Association.
In reality, it’s what the Fed indicates it’s going to do in the future through its commentary and projections that pushes mortgage rates up or down in the market. According to Taylor, mortgage rates tend to drop ahead of an expected Fed rate cut. If Fed rate increases are projected, mortgage rates will usually rise before that rate increase even happens.
“The Federal Reserve’s policy stance plays a key role, but it’s more about what the Fed’s decisions signal than it is about any single change in the federal funds rate,” says Darren Tooley, team sales manager at Union Home Mortgage.
In general, experts expect the Fed to reduce rates at its September meeting, according to the CME Group’s FedWatch Tool. The central bank will also release its quarterly Summary of Economic Projections at that time, which will indicate the likelihood of any future rate moves.
“Right now, the general consensus is the Fed will lower the Federal Funds by .25 basis points when they meet in mid-September,” says Bill Dawley, senior vice president of residential lending at Amegy Bank. “Markets typically begin pricing in such changes, ahead of the official announcement.”
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Inflation and labor data
An important thing to note is that the Fed doesn’t make its decisions in a vacuum.
“The Fed still sets the tone for rates, but it’s important to recognize that it is neither omniscient nor omnipotent,” Isaac Boltanksy, head of public policy at Pennymac, says.
The Fed bases its moves and projections on a constant influx of economic and market data reports. And inflation and unemployment? Those top the list.
“The Fed’s dual mandate is to keep inflation under control — which they do with higher rates, and keep the job market as strong as possible — which they do with lower rates,” Taylor says.
Jobs data has been strong overall in recent months, though inflation has moved upward, rising from 2.3% in April to 2.7% by the July report. If that trend continues, it could mean higher rates in the coming months.
However, “If job growth slows and inflation cools, we could see a meaningful move lower in rates,” Boltansky says. “Ultimately, it all comes down to a delicate interplay of the Fed, the data, and the headlines.”
Watching the Personal Consumption Expenditures (PCE) and the Consumer Price Index (CPI) — monthly inflation reports released by the government — can help you get a better idea of what may come. You also may want to keep an eye on tariffs, too, particularly how those are affecting the prices of goods and services to the general public.
“Recent tariff policies and implementations could potentially increase consumer prices, thus fanning the flames of inflation,” says Aaron Craig, vice president of mortgage at Georgia’s Own Credit Union. “This could affect the Fed’s rate decisions in the coming months.”
Investment activity
Investor activity influences mortgage rates, too, including investments into mortgage-backed securities (pools of mortgage loans) and Treasury bonds.
“What moves mortgage rates daily is trading of mortgage bonds,” Taylor says. “If bond traders feel that the Fed will resume a rate cut path they started in September 2024, they’ll buy more, which would push mortgage rates down.”
Ahead of that previous September 2024 rate cut that Tooley mentions, bonds rallied and mortgage rates dropped, falling to just over 6% — the lowest point in about two years. The relief was short-lived, though.
“Mortgage rates rose back up above 7% after the Fed cuts last fall because bond traders started growing concerned about inflation potential after the presidential election,” Taylor says.
Investment activity can be a hard one for the average consumer to watch, but the 10-year Treasury yield is a good place to start. As yields on 10-year Treasury bonds rise and fall, mortgage rates tend to move in step.
“The 10-year Treasury remains a key benchmark for both the 30- and 15-year fixed mortgage rates,” Dawley says.
Larger geopolitical and economic changes
Broader conditions can also influence mortgage rates, meaning virtually anything going on in the economic or geopolitical climate can have an impact.
“Geopolitical uncertainty, weaker U.S. jobs growth, or easing U.S. inflation will also cause bond traders to buy, which brings mortgage rates down,” Taylor explains.
Geopolitical issues that affect oil prices can be particularly influential, Dawley says.
“I anticipate mortgage rates will hinge on how the broader economy evolves in the coming months,” Dawley says. “Economic growth has slowed somewhat, mainly due to businesses adjusting after earlier inventory surges. This cooling in activity reduces inflationary pressure, which could lead to lower mortgage rates if the trend proceeds. However, if growth picks back up, it could push rates higher as the Fed responds to renewed inflation risks.”
What experts predict for mortgage rates this fall
Experts largely think mortgage rates will fall — at least slightly — as we head toward the end of the year.
“No one can say with certainty which way rates will move, but there is good reason to believe the direction of travel is lower in the coming months,” Boltansky says. “In terms of magnitude, the data will have the final say, but it’s fair to think that any shift lower will be more of a modest move than a dramatic swing.”
As of its most recent forecast, Fannie Mae projects a 6.4% average mortgage rate on 30-year, fixed-rate loans. That’s down from the 6.58% it sits at today.
The bottom line
In the meantime, if you’re eyeing a home purchase or refinance, Taylor has this piece of advice: “Be ready to capture rate lows quickly in this kind of volatile environment. The best way to do that is to keep your pre-approval updated with your lender, and ask your lender to keep you informed about rate dips when they come.”
