High mortgage rates have been a pain point for both buyers and sellers for the last couple of years. For over a decade (2010 to 2020), the housing market benefited from low mortgage rates, which sparked a decade of strong growth. However, following the pandemic era, high interest rates have led to affordability and inventory challenges.

The current rate environment has left many consumers wondering: What’s next? While many factors influence mortgage rates, the Federal Reserve, and more specifically, the Federal Funds Rate strongly correlates with mortgage rates. As a result, many industry experts pay close attention to the Fed’s policy decisions to predict what will happen next in the housing market.

Following three consecutive rate cuts in 2024, the Fed again decided to keep the Federal Funds rate unchanged in March 2025 for the second time this year. As a result, many buyers and sellers are wondering whether we can expect to see a decrease in mortgage rates in the coming months. We’ll share everything we know about the situation below:

How The Federal Fund Rate Influences Mortgage Rates

The Federal Reserve does not set mortgage rates, but it does influence them. The Federal Reserve manages the Federal Funds Rate, which is adjusted up, down, or left unchanged at every Federal Open Market Committee (FOMC) meeting.

The Federal Fund rate determines how much banks pay in interest to borrow funds from reserves. If it’s less expensive for a bank to borrow funds, then it can incentivize them to lower rates to be more competitive in the market.

The Federal Fund Rate has a major impact on the economy. It significantly influences a bank’s short-term interest rates on credit cards and loans, which impacts borrowing costs and spending decisions for both businesses and consumers, which in turn heavily impacts economic activity.

In addition to the Federal Funds rate, mortgage rates are based on a wide range of factors, including the overall health of the economy, banks themselves, and the bond market. In fact, the 10-year Treasury Yield is the one marker that most strongly correlates with interest rates. Nevertheless, the Federal Fund Rate forecast is often used by industry experts to predict the future of the housing market.

How The Fed’s Recent Interest Rate Decisions Impact The Housing Market

At the second FOMC meeting of 2025, which occurred in mid-March, the Fed decided to leave interest rates the same for the second meeting in a row. This decision follows three consecutive rate cuts in the back half of 2024.

When the Fed started cutting rates in September 2024, the market benefited significantly. Following the initial half-point cut, mortgage rates fell by nearly 180 basis points (from 8.01% to 6.20%). This spurred a short-lived bump in home sales and listings. However, rates jumped back over 7% in the back half of the year despite two additional rate cuts.

The Fed has been less aggressive to start 2025 as they’re opting to keep rates the same while monitoring inflation’s trajectory toward the 2% annual target. However, many industry experts are predicting additional rate cuts later in the year.  Therefore, mortgage rates will likely stay the same in the short term.

High Interest Rates Impact Both Buyers And Sellers

The high mortgage rate environment creates both affordability and inventory challenges that impact all sides of the market. For buyers, higher rates lead to higher monthly mortgage payments, which can be especially challenging as home prices remain at an all-time high. These affordability challenges are leaving many buyers on the sidelines, waiting for changes in the market. Additionally, millions of sellers are reluctant to give up the low rates they locked in during the pandemic era, which is weighing on available inventory.

As a result, fewer buyers can afford a home, which also means fewer homeowners are willing to sell. The combination of affordability and inventory challenges has left the market frozen and significantly reduced transactions. As these two forces spiral, they create a cycle that is difficult for market forces to break.

The good news is that many industry experts expect the Fed to cut rates in 2025, but the timing and extent of those cuts remains uncertain and is heavily dependent on inflation and the overall health of the economy.

Regardless of Market Dynamics, the REALTORS®at Bee Realty Corp Can Help You Buy Or Sell Your Home

The real estate market is constantly changing, but regardless of whether it’s a buyer’s market, a seller’s market, or a frozen market, customers still have housing needs and have to navigate the current challenges. This is where Bee Realty Corp can help.

The team at Bee Realty Corp can help our clients overcome challenges on the path to homeownership or home sale. Despite the current market dynamics, we can still help you reach your real estate goals. The expert REALTORS® at Bee Realty Corp specialize in highly complex real estate transactions, so we’ve encountered nearly every possible scenario.

While higher mortgage rates might stick around a little longer, you don’t need to be discouraged by the market. If you need to buy or sell a home this year, don’t hesitate to call us today.