Mortgage rates unchanged in anticipation of the expected rate cut by the Fed
The stable nature of mortgage rates in recent weeks is partly related to the consistency in mortgage spreads. The difference between the 30-year mortgage rate and the 10-year government rate is higher than the historical average of 1.60% to 1.80%, but at a current figure of 2.19% is much lower than at the end of 2023 and the end of 2024.
“Mortgage spreads have been the unsung superheroes of the housing sector this year, because without an improvement in mortgage rates we wouldn’t have mortgage rates near 6%,” HousingWire chief analyst Logan Mohtashami wrote this weekend.
Despite ongoing friction between employment numbers and inflation numbers that could pull the economy in opposite directions, interest rate traders are confident the Federal Reserve will cut rates on December 10.
The CME Group‘s FedWatch tool shows that 87% of traders expect a 25 basis point cut, which would put the federal funds rate in a range of 3.50% to 3.75%. It has not been this low since September 2025.
Clear MLS Chief economist Lisa Sturtevant said last week she didn’t expect much movement in mortgage rates, even with a third straight Fed cut.
“We are entering the traditionally slowest period for the housing market. Monthly home sales are lowest in November, December and January. Market activity decreases during the winter as potential sellers set their sights on early spring,” Sturtevant said in a written commentary.
“We are in a wait-and-see housing market as we head into 2026. There are both buyers and sellers on the sidelines, watching not only where mortgage rates and the economy are headed, but also how confident they are about their own personal situations.”
What will the Fed do?
Under Jerome Powell’s watch, the Federal Reserve has generally shown solidarity with its monetary policy decisions. But the disagreement has grown in 2025 and was evident at the central bank meeting in late October, when Kansas City Fed President Jeffrey Schmid voted for no cut, while Governor Stephen Miran voted for a larger cut of 50 basis points.
A article published Monday by The Wall Street Journal illustrated the divide. Four policymakers were named who are ‘more likely to favor a cut’ and five who are ‘less likely to be in favor of a cut’. Powell, along with Governor Lisa Cook and Vice President Philip Jefferson, could serve as tie-breaking votes as their positions are less clear.
After this month, the direction of interest rates could become even more divisive. President Donald Trump is expected to announce Powell’s replacement soon, with the choice likely to align with Trump’s desire for much lower tariffs.
According to a recent report from Bloomberg, Kevin Hassett is the frontrunner for the job of Fed chairman. Hassett is the director of the White House National Economic Council and a Trump ally that could push for lower tariffs on a faster timeline. Other candidates include current Fed Governors Christopher Waller and Michelle Bowman; former Fed Governor Kevin Warsh; And BlackRock director Rick Rieder.
Whoever takes over when Powell’s term ends in May 2026 will lead similar debates over interest rate policy and its impact on housing demand. And according to Mark Fleming, chief economist at First AmericanThere are other factors at play that will influence house sales and mortgage production next year.
“A key dynamic for affordability is that household incomes are expected to rise faster than house prices next year,” Fleming said. “According to the New York Fed’s Survey of Consumer Expectations, the average expected household income growth is 2.8 percent. When income growth exceeds home price growth, home purchasing power improves — even if mortgage rates do not drop significantly.
“This is a key driver for the roughly 3 percent improvement in affordability we expect between the end of this year and the end of 2026, which would return affordability to levels not seen since summer 2022.”
