Fed Rate Cut in Orange County: Mortgage Rates & Home Prices

Data: Freddie Mac PMMS (weekly) and Federal Reserve FOMC statement, Sep 17, 2025. Replace the image URL after uploading to your media library.

The Fed’s September 2025 Rate Cut: What Happened and Why

On Sept. 17, the Federal Reserve’s policy committee voted to cut its benchmark federal funds rate by 0.25%, bringing the target range down to 4.00%–4.25%. This was the Fed’s first rate reduction since late 2024, a shift aimed at countering signs of a cooling economy. Fed Chair Jerome Powell cited a softening job market and rising unemployment risk as key reasons for the cut. For consumers, a lower Fed rate can mean cheaper borrowing costs on things like credit cards, auto loans, and home equity lines. But for long-term home loans, the story isn’t so straightforward.

The Fed’s decision signals a change in monetary policy direction. It also indicated more cuts could follow in late 2025 if economic conditions warrant. That has many homeowners and buyers asking: will this trend toward easier policy finally push mortgage rates down?

Will Mortgage Rates Fall After the Fed’s Move?

Mortgage rates have in fact dipped slightly in anticipation of the Fed’s decision. Lenders largely saw this cut coming, and in the week before the announcement the average 30-year fixed mortgage fell below 6.5% – the lowest level in 2025. “Rates have been trending downward lately, and while we’re not seeing dramatic drops, the momentum is encouraging,” said Chris Lim, chief growth officer at a national real estate brokerage. In other words, the Fed’s anticipated action had already been partly “priced in” to mortgage rates. Many experts believe that absent any big economic surprises, we could see a slow, steady decline rather than a sudden plunge in mortgage rates through late 2025.

Industry forecasts suggest only modest improvement. Fannie Mae’s latest forecast as of August predicts the 30-year fixed rate will still be around 6.5% by the end of 2025 – barely lower than today. “We shouldn’t be thinking mortgage rates are going to plunge into the mid-5s,” one mortgage lender cautioned after the Fed’s cut. In the past month, rates have dipped from the 7% range to the mid-6s, which is a relief for buyers, but they remain historically high.

“We shouldn’t be thinking mortgage rates are going to plunge into the mid-5s.” — Phil Crescenzo Jr., Vice President at Nation One Mortgage Corp

Why Don’t Mortgage Rates Always Follow Fed Cuts?

It might seem intuitive that if the Fed cuts interest rates, mortgage rates should fall – but that’s not always the case. In fall 2024, the Fed cut its rate multiple times, yet 30-year mortgage rates actually jumped from around 6.2% to over 7%. This disconnect is a clear reminder that the Fed doesn’t directly set mortgage rates. Home loan rates are driven by investor demand in the bond market, especially the 10-year Treasury yield and mortgage-backed securities. Those, in turn, are influenced by inflation expectations and global economic forces.

After the Fed’s latest cut, if investors worry that easier policy could reignite inflation, long-term bond yields might rise – pushing mortgage rates up even as the Fed rate goes down. Conversely, if markets interpret the Fed’s move as a sign the economy is weakening, investors might flock to the safety of bonds, driving yields (and mortgage rates) down. In Orange County (and nationwide), mortgage rates tend to follow the 10-year Treasury much more closely than the Fed’s overnight rate. In short, the Fed’s cut is just one piece of the puzzle; factors like inflation trends, investor sentiment, and global events will continue to dictate where mortgage costs go next.

Fed Rate Cuts & Orange County Home Prices – What to Expect

What about home values? Orange County’s housing market has been remarkably resilient through the past few years of rising rates. As we noted in a recent Orange County housing market update, high mortgage rates in 2024–2025 thinned the buyer pool, yet limited inventory kept prices near record highs. In mid-2025, the OC median sale price was roughly $1.2M – essentially flat year-on-year – despite sales volumes being 20–30% below normal levels. Sellers have been reluctant to drop prices significantly, in part because so few homes are on the market. In fact, even in more moderately priced communities like Aliso Viejo or Costa Mesa, typical homes now often carry million-dollar price tags. That means a small dip in interest rates only marginally improves affordability for local buyers.

Going forward, a gentle downtrend in mortgage rates could bolster demand in Orange County, but it’s unlikely to trigger a rapid surge in home prices. More likely, it will put a floor under prices and help prevent any significant declines. If rates ease from ~6.5% toward the low-6% or high-5% range over the next year, more buyers who were priced out might be able to re-enter the market. With inventory still very tight, any uptick in demand can support home values. Sellers might notice a few more showings and potentially slightly quicker sales if borrowing costs continue to ease.

However, no one is predicting a return to the frenzied price spikes of 2021. Affordability remains a serious challenge – Orange County incomes haven’t kept up with the massive price gains of the past decade. Even with a Fed rate cut, mortgage rates are still double what they were at their 2021 lows, and buyers today are extremely payment-conscious. It’s also worth keeping an eye on the broader economy. The Fed’s move is intended to cushion against recession risks; if a downturn or higher unemployment does materialize, that could put some downward pressure on home prices. But if the economy avoids a hard landing, Orange County real estate could be in a sweet spot: modestly lower interest rates enhancing demand, while limited supply continues to prop up prices.

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Natalie Boyle
REALTOR®, Founder of Verso Homes (DRE #01329012)
Over 15 years helping South OC homeowners discover their perfect community.
Learn more about Natalie →