As the Fed Stands Pat, February Mortgage Rates Will Stand Still


February mortgage rate forecast

Everyone is impatient for mortgage rates to go down. Folks might have to wait at least another month because mortgage rates might not change much in February.

Market observers expect mortgage rates to fall this year, but not until the Federal Reserve signals that it’s ready to relax monetary policy. The central bank didn’t send that signal at the conclusion of its Jan. 30-31 meeting. As a result, mortgage rates might remain relatively unchanged until markets believe the Fed is about to loosen monetary policy by cutting the federal funds rate.

That rate cut could happen as soon as the next scheduled Fed meeting, which ends March 20. But the central bank has signaled that it’s not in a hurry to cut rates. It might wait until the meeting that ends May 1, or maybe the one that ends June 12.

Lisa Sturtevant, chief economist for Bright MLS, a real estate database in the mid-Atlantic region, says a May 1 Fed rate cut seems the most likely scenario. That probably would influence mortgage rates to fall — but it won’t be the only factor influencing them. Rates could bounce higher, at least temporarily: “If rates start to fall and then we see more people coming into the market, and demand increases for those mortgages, that also can prop them up a little bit more than they might otherwise be allowed to fall,” she says.

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The longer-term outlook for mortgage rates

When you zoom out from day-to-day rate movements, forecasters expect mortgage rates to decline this year. Fannie Mae and the Mortgage Bankers Association predict that the 30-year mortgage rate will average around 6% in the fourth quarter, down from 7.3% in the fourth quarter of 2023.

The forecasters expect mortgage rates to fall because they believe inflation will continue to wane. The Fed is expected to cut the federal funds rate as inflation fades. Mortgage rates should sink, too. But these factors are more likely to coalesce in the spring, not in February.

The Fed has a goal of maintaining the inflation rate at 2%. Its favored measure of inflation, the core PCE price index, was 2.9% in December, compared with 4.9% a year before. It’s moving in the right direction but has room to drop further.

Diane Swonk, chief economist for KPMG, a global accounting and business advisory group, tweeted Jan. 26 that the inflation data spelled good news and predicted that the Fed’s first rate cut will come at its meeting ending May 1.

According to the CME FedWatch tool, traders in the interest rate futures market believe there’s more than a 50% probability of a rate cut in March, and almost certainly one by May.

How this forecast could go wrong

This February prediction says rates might not change much. It doesn’t say they won’t change at all. Mortgage rates move daily, sometimes rising and sometimes falling. These changes are expected to be small and gradual.

If rates do make a big run upward or downward, it will probably be in response to an economic report with surprising results. The most important economic indicators are the monthly employment report and the consumer price index. The January jobs report is due the morning of Feb. 2, and the CPI report is scheduled to be released the morning of Feb. 13.

Mortgage rates could rise following an employment report showing unexpectedly brisk job growth or a report of higher-than-expected inflation. Mortgage rates could drop following a report of weaker-than-forecasted job growth or surprisingly tame inflation.

January’s prediction: What happened?

At the beginning of January, I predicted that mortgage rates wouldn’t change much. There were ups and downs during the month, but ultimately, the forecast was accurate. The 30-year mortgage rate averaged a little over 6.5% in the last week of December, and a little under 6.6% in the last week of January.

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Min. down payment 

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NerdWallet’s ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.

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NerdWallet’s ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.

Min. down payment 

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