As the Federal Reserve prepares for its upcoming meeting, homeowners and homebuyers across the Coachella Valley are wondering: Will a rate cut finally bring mortgage relief? The short answer? It depends - but here’s what you really need to know if you’re watching the real estate market in Palm Springs, Rancho Mirage, Palm Desert, La Quinta, or any of our beautiful resort cities.
First, Let’s Clear Up a Common Misconception
The Federal Reserve doesn’t directly set mortgage rates. Instead, it controls the Federal Funds Rate - the short-term interest rate that banks charge each other. While this benchmark influences many areas of the economy (including credit cards, auto loans, and business lending), mortgage rates are driven more by market expectations and long-term bond yields.
But here's the catch: mortgage rates often react before the Fed makes a move.
What’s Happening with the Fed Right Now?
As of mid-September, markets are nearly certain the Fed will lower its benchmark rate. According to the CME FedWatch Tool, there’s almost a 100% probability of a rate cut. And based on what we know now, there’s about a 92% chance it’ll be a small cut (25 basis points) and an 8% chance it will be a bigger cut (50 basis points):
So, what exactly is the Federal Funds Rate? It’s the short-term interest rate banks charge each other. It impacts borrowing costs across the economy, but it’s not the same thing as mortgage rates. Still, the Fed’s actions can shape the direction mortgage rates take next.
And even though inflation rose slightly in the latest CPI report, the Fed is still expected to make a cut.
This anticipated move is aimed at softening the impact of cooling job data and maintaining economic momentum - all while keeping inflation in check.
But what does that mean for you if you’re buying or selling a home in the Desert Cities?
Mortgage Rates May Not Drop Overnight
Here’s where it gets interesting for homeowners in our market. Mortgage rates have already dipped slightly in anticipation of this rate cut - especially after recent weaker-than-expected employment numbers. So if the Fed only cuts by 25 basis points, much of that may already be “priced in.”
However, if the Fed surprises markets with a more aggressive 50 basis point cut, we could see mortgage rates fall further, offering some real affordability relief.
What’s the Outlook Through the End of 2025?
Many economists believe this could be the start of a rate-cutting cycle, with additional cuts possible before the year ends - particularly if economic data continues to cool. That could mean lower borrowing costs for both homebuyers and homeowners looking to refinance.
While the upcoming cut may not move the needle much, many experts expect the Fed could cut the Federal Funds Rate more than once before the end of the year. Of course, that’s if the economy continues to cool (see graph below):
As Sam Williamson, Senior Economist at First American, explains:
“For mortgage rates, investor confidence in a forthcoming rate-cutting cycle could help push borrowing costs lower in the back half of 2025, offering some relief to housing affordability and potentially helping to boost buyer demand and overall market activity.”
If you’ve been on the fence about making a move, that shift in affordability could make a noticeable difference.
What This Means for Greater Palm Springs Real Estate
Whether you’re looking to upgrade in Palm Desert, downsize in Rancho Mirage, or invest in a second home in La Quinta, timing matters — especially when it comes to mortgage rates.
Even a slight change in rates can impact your monthly payments and buying power. But remember: waiting for the “perfect” rate drop could mean missing the right house or facing more competition as buyer activity picks up.
Bottom Line from Desert Cities Home
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A Fed rate cut is likely coming soon — but don’t expect mortgage rates to drop dramatically overnight.
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Mortgage rates react to market expectations, not just the Fed’s actions.
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If this is the beginning of a trend, you could see better rates in late 2025 and early 2026.
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Now’s the time to build your strategy with a local real estate expert who understands the nuances of our desert market.
Let’s talk about how to take advantage of what’s coming — and what moves make the most sense for your goals here in Greater Palm Springs.
