You’ve probably heard the Federal Reserve (the Fed) is raising rates again. And if you’re planning to buy or sell a house, you may be wondering what that means for you.

With all the headlines, it’s easy to think the Fed sets mortgage rates. That’s actually a common myth. But the Fed’s decisions can still have an impact on them.

So, where does that leave you? The next few months could get a little bumpy. But the Fed is playing the long game. And with the right plan, you can still make a move that works. Let’s break it down.

Why the Fed Is Raising Rates

It all comes back to inflation. With prices rising fast, everything is getting more expensive – and that leaves buyers with less spending power and makes homes cost more to build.

So, the Fed raises its key short-term rate (the Federal Funds Rate) to slow down inflation. And that’s where a lot of people get tripped up.

• MYTH: The Fed controls mortgage rates.

• REALITY: The Fed has an impact on mortgage rates, but it’s only one piece of the puzzle.

As NerdWallet explains:

“The Federal Reserve influences mortgage rates, but doesn’t set them. . . Mortgage rates are influenced by many elements, including the inflation rate, the pace of job creation, and whether the economy is growing or shrinking. The Federal Reserve’s monetary policy is a factor, too . . .”

Here’s the simplest way to explain how it all fits together. Mortgage rates tend to follow something called the 10-year treasury yield. That’s the return investors get for lending money to the government for 10 years. And that yield moves up and down based on what investors expect from inflation and the economy.

Right now, one of the biggest things moving that yield is the conflict in Iran. It’s pushed oil prices higher, which has investors worried about inflation. That’s why any news about the conflict can move mortgage rates. If there’s resolution in Iran, that could take some pressure off inflation and mortgage rates. But the timing is hard to predict.

What the Fed does can move that yield, too. When they hike the Federal Funds Rate to fight inflation, investors pay attention. That can push the 10-year yield up, and mortgage rates usually follow. But once inflation cools, the yield has room to come back down, and mortgage rates can, too. That gives buyers some of their purchasing power back (see graphic below):

Think of it as a little pain today to set up some relief down the road. But how long could that short-term pain last? A lot depends on what the Fed does next.

There’s a Strong Possibility the Fed Will Hike Again This Year

According to CME FedWatch, there’s over an 80% chance the Fed hikes their federal funds rate at least once more before the end of 2026 (see graph below):

Remember, the Fed doesn’t set mortgage rates. But another hike will likely keep upward pressure on them in the short term. So, should you wait it out? Sam Williamson, Senior Economist at First American, says this:

“Over time, firmer Fed action could help steady the bond market and open the door to lower mortgage rates, but only if investors become more confident that inflation is coming under control.“

And there are some early signs that’s starting to happen. Inflation cooled faster than experts expected in August:

• PCE inflation dropped to 3.4%, down from 3.7% in July.

• Core PCE (the Fed’s preferred measure which leaves out food and energy prices) fell to 3%, down from 3.3%.

That’s a step in the right direction, and it’s part of why the odds of a hike at the Fed’s October meeting have come down recently. But inflation’s still above the Fed’s 2% target, and it’s been that way for about 5 years. So, lower rates could still take a while. Your best bet is a plan that works at today’s rates.

How To Make Your Move Work Right Now

While this rate hike cycle isn’t the headline you want to see, it doesn’t mean you have to wait. There are still ways to move, even now.

• If you’re buying: Get pre-approved so you know your real budget. Ask your lender about your options to get the best rate possible. And once you’re under contract, lock your rate so a jump before closing doesn’t raise your payment.

• If you’re selling: Decide what matters most to you – a quick sale or top dollar. Each one can call for a different plan. Price for today’s buyers, whose budgets are smaller with higher rates. And think about offering a rate buydown or other concession. They can do more for a buyer’s budget than a price cut.

Bottom Line

The Fed doesn’t set mortgage rates, but its hikes can keep them higher for a while. The goal is to bring inflation, and eventually rates, down over time. With more hikes likely this year, waiting may not pay off. So, connect with a local real estate agent to map out a plan that works at today’s rates.

Price cuts are turning up everywhere right now, and they read very differently depending on which side of the deal you’re on.

Sellers tend to worry a cut means walking away with less than they hoped. Sometimes that’s true, but more often it just means the market moved faster than the listing did.

Buyers, for their part, often assume a cut means something’s wrong with the house. Most of the time, that’s not it.

This is what’s actually driving all those price cuts, and why it matters no matter which side of the deal you’re on.

42% of Homes for Sale Are Now Carrying a Price Cut

According to HousingWire Data, the share of sellers cutting their asking price has climbed every month for 7 straight months (see chart below):

Today, more than 4 in 10 active listings have had at least 1 price cut, and the typical seller is cutting about $17,560 off their original number. 

Here’s why that’s happening. With rates still elevated and more homes to choose from, buyers can afford to wait for the right number. So, sellers who don’t start there often end up adjusting anyway.

What does that mean for you?

• If you’re selling, this isn’t a red flag. But it is a sign that pricing it right from day 1 is your best bet. Just know that the market’s been shifting fast enough this year that sometimes even a well-priced house can fall behind within a matter of weeks. If that happens to you, dropping your price to catch up to where pricing actually stands today tends to bring in more buyers and helps you sell closer to true market value.

• If you’re buying, it’s easy to assume a price cut means something’s wrong with the house. But with cuts happening on more than 4 in 10 homes right now, the reality is sellers are just catching up to where the market already is. And with affordability still tight, that’s exactly the kind of opening you need to get a better deal.

Why Sellers Are Adjusting Faster than Before

HousingWire Data also shows list prices are trending down nationally. That’s often a sign sellers are pricing more realistically from the start instead of listing high and getting stuck cutting later. List prices have fallen about $26,000 from last year’s peak.

Some of that decline is seasonal, since list prices typically soften each winter before rebounding in the spring. So, expect asking prices to keep drifting a little lower before turning back around (see chart below):

Jake Krimmel, Senior Economist at Realtor.com, explains: 

“That is good news for buyers, who are seeing lower asking prices and more room to negotiate, but it is also good news for sellers: Pricing to today’s demand is helping homes move and keeping more transactions alive in a high-rate environment.”

Translation – with rates still elevated, buyers can only stretch so far. Sellers who meet them where they are instead of holding out for unrealistic prices are the ones actually getting to closing. And doing that up front is always better than chasing the market later.

Buyers, You’ve Got Room To Negotiate Again

At the same time, Redfin data shows sellers now outnumber buyers by about 58%, the widest gap on record (see chart below):

That changes the power dynamics of the market – and impacts how homeowners should price their house. Nationally, about 7 in 10 markets now favor buyers or are trending that way.

• For sellers, that means standing out matters as much as pricing. With more homes to choose from, buyers are comparing you directly against the competition. So, a little flexibility, like covering closing costs or being open on timing, can be what gets your house picked over another.

• For buyers, it means more room to ask for a lower price, help with closing costs, repairs after inspection, or some combination of all 3. That’s especially true for homes that have already sat for weeks, where sellers are often the most willing to talk.

Bottom Line

Price cuts are a normal part of today’s housing market, and both buyers and sellers can use them to their advantage. Connect with a local real estate agent to look at what’s actually happening with prices in your neighborhood, so you know exactly where you stand before you list or make an offer.

Today’s housing market splits into four distinct types. You’ve got cash buyers, buyers financing a purchase, owners who feel locked into a low rate, and builders with homes to sell. Which type you’re in changes how you should buy or sell. Ryan Serhant, CEO of SERHANT agrees:

“There is no longer a housing market . . . There are four Americas.”

Here’s what each looks like, and what it means for you.

Cash Buyers: 1 in 4 Buyers Are Paying with Cash

If you already own a home, you may be able to buy your next place in cash thanks to your equity. In fact, 26% of existing home sales this summer were all-cash, according to the National Association of Realtors (NAR). That’s roughly 1 in 4 buyers skipping a home loan entirely.

Data from Realtor.com shows most are at the very top and very bottom of the market by price point (see graph below):

For Buyers: If you’re able to buy in cash too, having no financing contingency means your offer is going to look really appealing to sellers. You may get a faster close and more room to negotiate.

For Sellers: A cash offer can mean less risk of the deal falling through, but that certainty sometimes comes with a lower number attached. Compare the whole picture before deciding it’s automatically your best offer.

Buyers Using Financing: They’re Not Getting Help from Rates, But They Are from Sellers

If you’re looking to take out a mortgage, you should know mortgage rates aren’t likely to come down anytime soon. Data from Fannie Mae shows nearly half of experts actually raised their long-term rate forecast this year (see graphs below):

That’s tough for homebuyers relying on a mortgage, especially first-time buyers. But it’s not all bad news.

While buyers may not be getting the lower rates they want, at least there’s help to be had if you ask sellers for what you really need. Redfin data shows almost half of May sales included a concession like a rate buydown or closing-cost credit from the homeowner.

For Buyers: Stop waiting on rates to drop. Negotiate the concession instead. If the payment works today, that’s your signal.

For Sellers: Expect to negotiate. Build a concession into your pricing strategy from the start could be the thing that gets a deal done.

Rate-Locked Homeowners: Most Are Sitting on a Rate Below 5%

If you own a home already, you might not want to move and take on a higher rate than the one you’ve got. That’s the case for a lot of people. About 2 in 3 homeowners have a mortgage rate under 5%, according to Federal Housing Finance Agency (FHFA) data (see graph below).

When a homeowner has a rate that low, it’s harder for them to want to move and leave behind that ultra-low rate. Because, they’d likely have to take on a higher one on their next home. Hence “rate locked” – they feel locked in.

And, according to Fannie Mae data, most experts think that lock-in will stick around another 3-5 years. That means this will continue to be a factor in how many homes come up for sale.

For Buyers: Fewer homeowners are listing, but the ones who do usually have a real reason to move. They’re often more flexible, motivated sellers.

For Sellers: Run the math on what your equity actually buys before ruling out a move. Got an FHA or VA loan? Ask about making it assumable. It’s rare, but it’s a real selling point.

Homebuilders: They’re Negotiating More Than You Think

If you’re looking at new construction, this might be your moment. According to the latest Census data, builders have more unsold new homes sitting around than usual, enough that it would take nearly 10 months to sell them all at the current pace (well above the normal 4-6 months pace). That’s pushing builders toward price cuts and rate buydowns.

For Buyers: That’s where the deals are right now. Just be sure to use your own agent and compare the whole incentive package, not only the price tag.

For Sellers: Lead with what a builder can’t offer – mature landscaping, an established neighborhood, and a house that’s ready today, not in 8 months. That can help your house seem like a better optiona

Bottom Line

Four different housing markets are running at once: cash buyers, financed buyers, locked-in owners, and builders. Each one plays by its own rules, and the right move for one is exactly the wrong move for another.

Connect with a local real estate agent to figure out which one you’re actually in and build your next move from there.