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By Laura Melquist

Meet Laura Melquist, a Realtor whose journey from Division 1 basketball to real estate has been nothing short of inspiring. With a winning mindset cultivated on the court, Laura has translated this into real estate by being a negotiation expert, navigating the real estate market for both sellers and buyers.

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Recently brought some hope with the Federal Reserve lowering the Fed Funds Rate by 50 basis points. This news spread quickly across media outlets and social platforms, leading to many conversations with consumers expecting lower mortgage rates. However, it’s crucial to communicate clearly about this shift in fiscal policy. As professionals, we need to raise the bar of knowledge and further our value proposition by explaining all the factors that go into making one of the most significant purchases of one’s life.

Remember the beginning of 2024 when the Federal Reserve signaled for three rate cuts. Banks and investors projected even more, but many overlooked Chairman Powell’s caveats regarding mortgage rates. These additional points were the impact of inflation, unemployment, GDP growth, and job creation. Unfortunately, the necessary changes in these areas did not occur, resulting in no rate cuts until last week.

“While a reduction in the Fed Funds Rate can eventually influence mortgage rates, it's not a guarantee, and the impact often depends on broader economic conditions.”

The Fed Funds Rate is the interest rate at which banks lend money to each other overnight. When the Federal Reserve lowers this rate, it primarily affects short-term borrowing costs, such as credit card rates, personal loans, and other forms of adjustable-rate debt. However, this does not directly translate to lower mortgage rates.

Mortgage rates are more closely tied to long-term economic indicators like inflation, unemployment, GDP growth, and job creation. These factors were mentioned after the Fed Funds Rate cut announcement but were often overlooked in social media posts and news outlets. If these benchmarks improve, they create a more favorable environment for mortgage rates to decrease over time.

While a reduction in the Fed Funds Rate can eventually influence mortgage rates, it’s not a guarantee, and the impact often depends on broader economic conditions. Educating our clients on these differences can help them make more informed decisions as they manage the market.

All indicators point to the importance of understanding the nuances between different types of interest rates. By staying informed, you can better strategize your next move in the housing market, whether you’re a first-time homebuyer or looking to refinance. Contact me if you have questions about how current interest rates affect your mortgage options.

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