Mortgage market likely to be waiting a while longer for meaningful rate drops
The Federal Reserve trimmed its benchmark interest rate Wednesday – but bond yields hardly moved after the decision, suggesting that mortgage borrowers might be waiting a while longer to see significant rate relief.
The central bank’s 25-basis-point cut, its final scheduled decision of the year, had been widely expected by financial markets and the move appeared to have been firmly priced in before the announcement.
And 10-year US Treasury yields – a key driver of 30-year fixed mortgage rates – saw only marginal movement after the decision was revealed, hovering around 4.14% at time of writing compared with a high of 4.20% on Wednesday.
For the mortgage industry, that means the Fed’s cut hasn’t moved the needle much or strengthened chances of rates posting a meaningful late-year slide, according to William Raveis Mortgage regional vice president Melissa Cohn (pictured top).
“We’re not seeing any big movement in bond yields and we need bigger movement in order to instill more confidence,” she told Mortgage Professional America.
“I think if we saw the 10-year Treasury yield sitting at 4% or under for more than just a minute, that would help to build confidence. Getting 30-year fixed rates below 6% is what the market needs.”
That’s been a familiar challenge in 2025. The average 30-year fixed rate fell to its lowest level for over a month last week, according to Freddie Mac, but a level in the sixes is still not convincing many buyers that now is the time to make a move.
Sub-6% mortgage rates a distant prospect for now
Some analysts don’t see a drop under 6% anytime soon. Fannie Mae’s recently revised forecast for next year indicated a likely 6.2% average rate in the first quarter of 2026, eventually inching down to 5.9% by the end of December.
There’s no prospect, either, of a return to the huge discounts seen in the mortgage market during the COVID-19 pandemic, when homeowners and buyers rushed to take advantage of much lower rates amid wider economic turmoil.
Powell referenced that so-called “lock-in” effect in his Wednesday remarks, suggesting that it’s weighing against the housing market’s performance as homeowners hold onto their ultra-low pandemic-era rates instead of moving and having to give them up.
He also indicated the recent weeks-long government shutdown complicated the Fed’s December move, and suggested a clearer run of economic data is needed before its next announcement in January.
Chair Powell reads opening statement at the #FOMC press conference on December 10, 2025: https://t.co/eFLcTWG9qT
— Federal Reserve (@federalreserve) December 10, 2025
Cohn said financial markets are also likely taking a cautious approach as they await further employment and inflation data to accurately weigh how the US economy is holding up. “There hasn’t been enough said or done to move or sway the bond market in any sort of meaningful way,” she said.
“I think we’re still very much [in a holding pattern] until we get more data. It’s basically going back to data watching. There’s just not enough actual, current data to move the markets one way or the other.”
What the Fed’s approach could mean for 2026 mortgage rates
If Powell had left the door open for multiple 2026 cuts in yesterday’s announcement, that could have pulled 10-year yields lower and put downward pressure on mortgage rates – even though those rates don’t rise and fall directly in tandem with Fed decisions.
But he gave no indication that a flurry of cuts is on the way, and the Fed’s so-called “dot plot” – which gauges decision-makers’ expectations for rate policy looking ahead – still shows a likelihood of just one reduction in 2026 and one in 2027.
Yields could still tick lower in the months ahead if the economy weakens, inflation expectations cool, or mortgage spreads narrow.
For now, though, Americans hoping for a big imminent dip in mortgage rates could be left disappointed. “I personally don’t think the Fed will do anything for a while now because they need to really see how the economy is doing,” Cohn said. “We’ll see how it all goes.
“Powell says it’s a wait-and-see. We’re all in that wait-and-see, but at least to this point there’s not enough big market-moving data.”
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