By Serj Markarian, Licensed Real Estate Salesperson and Manhattan Market Expert

The Federal Reserve's long-anticipated rate cut became a reality yesterday, marking the first reduction in over four years. The key interest rate was slashed by 50 basis points—an unusually large cut—bringing the federal funds rate to a range of 4.75% to 5%. This decision surprised analysts, who had largely expected a more modest 25-basis-point cut, making the move both larger and more impactful than predicted.

While this long-awaited news might lead some to expect an immediate drop in mortgage rates, that won’t happen right away. Rates are likely to decline gradually over time, but it’s important to understand that the federal funds rate isn’t directly tied to mortgage rates. Instead, long-term bonds—especially the 10-year Treasury yield—play a key role. Additionally, the mortgage industry may temper any sharp rate decreases to balance profitability with attracting buyers.

Mortgage rates had already been trending downward in anticipation of yesterday’s rate cut, dropping last week to 6.15%—their lowest level since September 2022. As, a senior economist at LendingTree, Jacob Channel wryly notes, “It goes to show that even when the Fed isn’t doing anything and just holding steady, mortgage rates can still move.

While rates are expected to decline gradually, Greg Heym, Chief Economist at Brown Harris Stevens, cautions that waiting too long in hopes of further drops could backfire. Lower rates may spur increased demand, intensifying competition and reducing inventory, which could drive prices higher and offset any savings from the lower mortgage rates.

Predicting market movements is particularly challenging, and there’s always a chance that rates could rise again before you secure an attractive rate. Locking in a favorable rate now may be the best course of action, especially with rates already at a two-year low. Please reach out if you’d like to discuss this further and explore all your options.

For questions on the Manhattan real estate market, connect with Serj Markarian here.