November 2024's Fed meeting and mortgages: Live coverage

While a lot could change in the New Year with a new administration coming in and some still think higher financing costs could return, others think the outcome of the Fed meeting on Thursday and the likelihood of future cuts telegraphed in it suggests a possible mortgage rate decline next year.

"Going into 2025, we do think mortgage rates will come down moderately as the Fed works through its easing cycle," said Eric Orenstein, a senior director at Fitch Ratings. "We're still expecting 2025 to be a better environment for mortgage companies on average."

Consolidation and cost right-sizing actions engaged in previously combined with the potential for lower rates could mean better prospects for profitability as could lower warehouse line costs. The fact that Fed left its bond portfolio unchanged is promising for rate stability too.

"Even if there isn't an increase in origination volume, we're already seeing better results relative to last year," Orenstein said.

Mortgage-backed securities pricing vacillated throughout the Fed's press conference but it generally didn't change the day's trend, according to Barry Habib, founder and CEO of MBS Highway.

Ultimately, it looks like there would be roughly a 0.125% point break in the mortgage rate on the day on average shortly before 4 p.m., according to Habib.

"The initial reaction was good and the MBS market got through Powell's comments without much deviation," he said, noting that the Fed's concern about keeping employment stable while reducing inflation contributed to a calm that's reasserted itself after the election volatility.

Between that and the dynamic with competing investments, a decline in rates in the future is looking more possible for the moment, Habib said, although he noted that is pending what the next Consumer Price Index report shows about the inflation the Fed wants to control.

"Next week's CPI number could change the complexion," he said.

While many say the anticipation that some of the proposals from the Trump campaign could be inflationary has contributed to upward pressure on mortgage rates, Fed Chairman Jerome Powell confirmed during a press conference the Fed isn't looking at this.

"The Fed has, over the years, been pretty good about not getting involved in speculation of various administration policies, generally [it has] made decisions based on the statistics," Powell said.

While Powell said the Fed doesn't incorporate speculation on what the effect of policies implemented after a change in administration will be for the economy, some industry professionals do think initiatives proposed on the campaign trail could add upward rate pressure.

"If we're not going to tax tips, for example, it's potentially inflationary, but until it's actually implemented, it's difficult to see what the impact is going to be," Dean Kelker, chief risk officer at SingleSource. 

Powell did say, "The job's not done on inflation," which has been a catalyst for rate tightening.

Interestingly, while speculative political policies don't enter into the Fed's view, Powell indicated the kind of increase in the deficit that's come up in the bond market's reaction to the election would be a concern if it actually materialized.

The current path for the deficit is "unsustainable," he said, adding that it is "ultimately a threat to the economy."

Powell said he plans to stay in his current post through the change in administration.

Shortly after the release of the statement, the MBS-to-Treasury spread was just a tick weaker, according to Schmidt. 

That left the mortgage rate outlook in question just ahead Fed's press conference, according to Michael Sachdev, CEO of Snapdocs, who cautioned against reading too much even into that when it comes to the market's long-term view.

"You have to consider long-term economic trends before we know what mortgage rates are going to do," he said. "I think the comments on those trends at the Fed press conference will help but there will be a change in our country's economic policy with the new administration."