Will mortgage rates drop in October without a Fed meeting?

On September 18, 2024, the Federal Reserve announced a 50 basis point cut to the federal funds rate. For homebuyers faced with record-high mortgage rates in the post-pandemic era, this was welcome news. Many had been prepping for a rate cut in hopes mortgage rates would fall after the September Fed meeting. Those readying themselves for cheaper home loans were given reason for optimism about September’s mortgage rate forecast when the Fed delivered a larger-than-anticipated rate cut. 

Still, the big question for most buyers is whether the Fed’s moves will push current mortgage rates low enough so they can finally buy a home with affordable monthly payments. Mortgage costs had already begun dropping in anticipation of the Fed’s actions and are down over a point from the post-pandemic highs — but are still higher than during the pandemic and in the years leading up to it. 

Buyers looking at loan offers in the 6% range are likely wondering if there’s a chance rates could decline further in October, even though the Fed doesn’t meet again until November.  If you’re considering staying on the sidelines in hopes that will occur, here’s what experts say about your chances.  

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Will mortgage rates drop in October without a Fed meeting?

For would-be homeowners focused on the Fed, it’s important to realize the central bank doesn’t play as big a role in driving borrowing costs as some buyers might think. 

“The Fed funds rate is not directly tied to mortgage rates, so we don’t need the Fed to announce another rate cut in October to see rates continue to decline,” says Sarah Alvarez, vice president of mortgage banking at William Raveis Mortgage. 

The Fed sets the overnight rate at which banks borrow from each other. It doesn’t impact mortgage rates directly. 

“Mortgage rates can and do move without a big decision by policymakers,” says Ali Wolf, the chief economist for Zonda. “Mortgage rates move on a day-to-day basis based on economic data and investor sentiment.” 

Wolf believes that since economic data is likely to come in muted, rates are likely to continue trending downward in October. 

Both inflation and employment numbers are key factors to watch. 

“If inflation continues to show signs of cooling we will likely see rates continue to decline,” Alvarez says. 

While Alvarez warns election uncertainty and an escalation of global wars could potentially have a negative impact, there’s also plenty of evidence suggesting economic trends will favor further cuts. 

“Prices have reached a point where Americans have stopped buying. Unemployment has also continued to increase,” says Ralph DiBugnara, founder of Home Qualified. “The combination is bringing inflation down, and with that mortgage rates will continue to fall next month.” 

October’s rate cuts still may not be as substantial as borrowers hope, though, unless conditions worsen. 

“Right now, the economy is running pretty strong but if labor market conditions weaken considerably, that could lead to a more sizable drop in interest rates,” says Lisa Sturtevant, PhD and chief economist at Bright MLS.

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Anticipation of future Fed action could cause rates to fall 

While some would-be homebuyers saw the long-awaited September rate cut as crucial to declining mortgage rates, the reality is that borrowing costs had already started to fall in anticipation of the Fed’s actions — and this is a pattern likely to repeat.

“The expected Fed rate cut this week has already been largely baked into mortgage rates, which have been falling since July,” Sturtevant says. “An expectation of a rate cut by the Fed in November could actually cause mortgage rates to fall in October in anticipation.”

Alvarez agrees that when the Fed is hawkish about future rate cuts, this positively impacts the mortgage market. That’s good news as the central bank signaled another half-point rate decrease is likely this year.  With the Fed’s intentions made clear, lenders can act sooner rather than later. 

“The Fed has changed their sentiment to one of reducing the borrowing rate,” DiBugnara says. “The markets now understand that the Fed has no choice but to lower rates.” Investors and banks will react accordingly. 

Buyers shouldn’t wait for a rate cut to act

While all available evidence suggests rate cuts are likely outcome in October, there are no guarantees — and there are some risks worth considering.  

“Many homebuyers have been waiting on the sidelines for rates to fall. If there is a surge in mortgage demand in October, mortgage rates could actually be pushed up a bit as lenders respond to that increased demand,” Sturtevant warned. 

An increase in buyer demand could also put upward pressure on home prices, leaving would-be borrowers in the unfortunate position of facing a more competitive market and higher purchasing costs just as mortgage loans become more affordable. 

Since buyers can refinance a home loan if rates decline, but can’t buy at today’s prices if home costs surge, those who have been sitting on the sidelines may want to take advantage of opportunities available now.

Today’s rates aren’t the most competitive in history, but they’re down considerably from recent highs. Borrowers who are financially ready can get in at a reasonable cost before home prices rise and consider refinancing later if rates continue to decline. 

The bottom line

While a Fed meeting won’t happen in October, potential home-buyers could still see important changes in the mortgage and housing market — including a reduction in loan rates.  

Still, the downside risks of delaying a home purchase in anticipation of future rate cuts may outweigh the upside. Would-be borrowers should seriously consider taking action before a potential home price surge — especially with the Fed signaling rate cuts could continue into 2025. Future opportunities to refinance are likely to become more plentiful over time, but the home prices of today may be gone for good tomorrow.