The Federal Reserve just announced a third rate cut; fewer are expected in 2025

Interest rates were reduced by a quarter of a percentage point. (iStock: )

It The Federal Reserve just cut interest rates once again this year.At their last meeting, the Fed decided to cut interest rates by a quarter percentage point to 4.25% to 4.5%, a move widely expected by economists.

The Fed cited signs of an expanding economy and an easing labor market after its other rate cuts this year, but economists don’t expect as many cuts in 2025.

“The average member now expects there to be only two cuts in 2025, and that the federal funds target will be 3 percent over the long term,” MBA senior vice president and chief economist Mike Fratantoni said in a statement. that the federal funds rate will fall to 3.75% this cycle.”

The unemployment rate also remains low and inflation is making slow but steady progress toward the committee’s 2% target, two factors that have created obstacles in the final decision to cut interest rates.

“While the unemployment rate has risen over the past year and inflation has fallen, inflation has picked up in recent months,” Fratantoni said.

With the latest interest rate cut, the Federal Reserve hopes to bring inflation closer to a higher rate and lower the unemployment rate.

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Home sales are likely to increase in 2025

The housing market has been bumpy for a year, but some aspects are expected to boost home sales in 2025. Real estate experts predict a slow freeze in mortgage ratesgiving prospective buyers who have been priced out of the market in recent years more room.

Many measures of the housing market are closer to historical norms, showing signs of an improvement in the market in the new year. Listings are still lower than before the pandemic, but they are significantly higher than in March, when there was a 25% deficit. according to Zillow.

However, buyers should not expect a completely smooth road to buying in 2025. For many, 2025 looks an awful lot like the volatile market of 2024.

“There is a strong sense of déjà vu for 2025. We once again expect mortgage rates to gradually improve and opportunities for buyers to follow, but be prepared for many bumps along the way,” said Skylar Olsen, chief economist at Zillow.

Buyers looking to move in the slower winter months have an advantage. Sellers who have been waiting for interest rates to drop may be looking to offload their homes while rates are falling.

“Shoppers this winter have plenty of time to choose and are in a relatively strong position to negotiate,” Olsen said.

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Mortgage rates and housing prices are expected to fluctuate over the next year

More listings may be on the horizon, but buyers shouldn’t expect low mortgage rates anytime soon.Prices are expected to rise by 3.7%. Realtor.com recently reported.

Mortgage rates are also expected to remain in the 6% range, with fluctuations throughout the year, as in 2024. With these small improvements, single-family home listings are expected to increase by about 14%, according to Realtor.com.

In some highly desirable areas, sellers will still hold power in 2025. Inventory is improving, but it is still limited compared to years past.This gives sellers an advantage when negotiating prices.

It’s hard to predict how the new presidential administration will factor into the housing market recovery, but there is the potential for a “Trump bump,” as Realtor.com calls it.

“While President-elect Trump can work quickly with his administration to enact some regulatory changes, other policies that will affect housing, such as tax changes and sweeping deregulation, require cooperation from other branches and levels of government.” – Realtor.com Chief Economist Daniel Haley said.

“The extent and direction of Trump’s pushback will depend on what election proposals ultimately become policy,” Haley said or hinder housing recovery, and the details will be important.”

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