Mortgage rates are likely to fall in October, even as the government shutdown complicates the economic outlook. Understanding the potential shifts in mortgage rates is essential for homebuyers and investors alike.
With a humble acknowledgment of the unpredictability of these forecasts, let’s explore the reasons behind the anticipated decline in mortgage rates this October.
First, how will mortgage shoppers be impacted? Historically, during past
government shutdowns
, mortgages have generally remained available, including those backed by the Federal Housing Administration (FHA loans) and the Department of Veterans Affairs (VA loans). However, some delays were noted, particularly with USDA loans, which were unavailable during those periods.
A Fed rate cut is almost a sure thing
Financial markets are increasingly confident that the
Federal Reserve
will lower the federal funds rate during its scheduled meeting on October 28-29. As of October 1, market indicators suggested a 100% probability of a rate cut, according to the CME FedWatch.
As investors gain confidence in the Fed’s potential to reduce short-term rates once or twice before the year ends, mortgage rates are expected to decline.
‘No preset course’ of Fed actions
However, there is some uncertainty surrounding the rate cuts. Fed officials, including Chair Jerome Powell and Vice Chair for Supervision Michelle Bowman, have indicated that the central bank’s rate policy is not on a predetermined path.
On September 17, the Fed released an economic forecast coinciding with a quarter-point rate cut. In this forecast, 12 Fed officials anticipated one or two additional rate cuts this year, while seven predicted no further reductions, highlighting the central bank’s indecision.
Danielle Hale, chief economist for Realtor.com, noted in a September 19 video statement that “the Fed’s own economic projections suggest a slower path of cuts may be more likely.”
Economic data is uncertain
The Fed’s decision to cut the federal funds rate in September stemmed from concerns about sluggish job creation, aiming to bolster job growth. However, this could inadvertently lead to increased
inflation
.
Prior to August, the Fed was primarily focused on controlling inflation, which is why it had refrained from cutting rates earlier in the year. However, disappointing
employment data
in August and September prompted a shift in focus from inflation to unemployment.
The next job market report was scheduled for October 3, but the Department of Labor announced that it would not release economic reports during a shutdown. Consequently, lenders and the Fed will lack access to crucial employment data.
Another significant report, the
consumer price index
for September, is also set for October 15, but will not be released if the government remains shut down.
What other forecasters predict
Both the Mortgage Bankers Association and mortgage securitizer Fannie Mae anticipate a slight decrease in mortgage rates in the last quarter of the year. According to Freddie Mac’s weekly survey, the average 30-year fixed-rate mortgage was 6.6% in the third quarter. Fannie Mae predicts it will drop to 6.4% in the fourth quarter, while the MBA expects it to fall to 6.5%.
What I predicted in September and what happened
In my September forecast, I anticipated that rates would remain stable until the Fed meeting mid-month. I suggested that a rate cut would keep mortgage rates steady or lead to a decline in the latter half of the month.
I was mistaken on both counts, as rates did not follow the expected trajectory. Instead, they fell in the first half of September, contrary to my predictions. Following the Fed’s rate cut, mortgage rates actually increased, which was the opposite of what I had anticipated.
