In my previous article, I explained that the Federal Reserve cannot—and should not—continue cutting rates aggressively this year. Even though earlier projections suggested two potential rate cuts, I argued that, at most, one more might happen before year’s end.
At the Fed’s most recent meeting on October 29th, they delivered the expected quarter-point cut, bringing the federal funds rate to 3.75%-4.00%. But Chairman Jerome Powell made something very clear during his press conference: a December rate cut is “not a foregone conclusion. Far from it.” There were “strongly differing views” among Fed officials about how to proceed, confirming my earlier skepticism about multiple cuts.
This decision or more accurately, Powell’s cautious tone about future cuts, has caused mixed reactions across the financial markets. But here’s the thing: everyone keeps looking to the Fed for relief, when the Fed isn’t the real issue here.
The Real Problem: Bank Profit Margins
The real problem lies with the banks and large lenders. Let me break down the numbers that reveal what’s really going on.
The Fed’s benchmark rate is now 3.75%-4.00%. The prime rate, which banks use as their baseline, currently sits at 7.00%. Meanwhile, consumers are being charged 6.27%-6.50% or higher on 30-year fixed mortgages.
Now, here’s where it gets interesting. Banks borrow at rates tied closely to the Fed’s benchmark, yet they’re maintaining substantial spreads on what they charge consumers. Even with the Fed cutting rates, mortgage rates haven’t dropped proportionally. Why? Because banks are protecting their profit margins rather than passing savings to borrowers.
The Disconnect Between Fed Rates and Mortgage Rates
When the Fed cuts rates, there’s an expectation that consumer borrowing costs will follow. But that’s not what’s happening in the mortgage market.
Consider this: The Fed has now cut rates twice this year (September and October), yet mortgage rates have barely budged. The average 30-year fixed rate hovers around 6.27%—hardly the relief Bay Area homebuyers were hoping for.
This isn’t about the Fed being stingy. It’s about banks choosing to maintain wider profit margins instead of making homeownership more affordable. The spread between what banks pay to borrow and what they charge consumers has remained stubbornly high.
Why This Matters for Bay Area Buyers
In the South and East Bay, where home prices remain elevated, every fraction of a percentage point on a mortgage matters enormously. On a $1 million home (modest by Bay Area standards), the difference between a 6.25% rate and a 5.75% rate is nearly $300 per month $3,600 annually.
If banks were passing along the Fed’s rate cuts more directly, qualified buyers could afford more home or have significantly lower monthly payments. Instead, banks are pocketing the difference.
What Should Happen Instead
If the government and future administration truly want to stimulate homeownership and economic growth, they should put pressure on banks to reduce their spreads and pass the savings on to consumers.
There are several ways this could happen:
Regulatory Pressure
Government officials could publicly call out excessive bank spreads and threaten regulatory scrutiny if margins don’t become more reasonable.
Increased Competition
Supporting non-bank lenders and fintech companies that offer more competitive rates could force traditional banks to compete more aggressively on price.
Transparency Requirements
Requiring banks to disclose their profit margins on mortgage products would shine a light on excessive spreads and create public pressure for change.
The Path Forward
So, while everyone keeps looking to the Fed for relief, the real solution lies elsewhere. Chairman Powell has made it clear that the Fed will move cautiously. Another rate cut might—emphasis on might—come in December, but even Powell isn’t committing to that.
My prediction? The Fed will likely pause after this October cut. The next meaningful rate reduction may not come until Q1 2026 at the earliest, and possibly later. Economic data, inflation trends, and labor market conditions all need to align for the Fed to feel comfortable cutting again.
But here’s what matters more: even if the Fed cuts rates again, don’t expect dramatic improvements in mortgage rates unless something changes with how banks price their loans.
What This Means for Bay Area Homebuyers
If you’re waiting for significantly lower mortgage rates before buying, you might be waiting a very long time. Here’s the reality:
Current Rates Are Your Reality
Rates in the 6.25%-6.50% range are likely to persist. Don’t let the hope of lower rates keep you from moving forward if you’re qualified and have found the right property.
You Can Always Refinance
If rates do eventually drop meaningfully (whether from Fed cuts or increased bank competition), you can refinance. But you can’t get back the time spent waiting or the appreciation your home would have gained.
Focus on What You Can Control
Instead of obsessing over rates, focus on:
- Improving your credit score for the best rate available
- Shopping multiple lenders to find competitive pricing
- Considering buying points to lower your rate
- Negotiating with sellers for rate buydowns
The Bottom Line
Mark my words: the Fed isn’t the roadblock to affordable homeownership—the banks are.
Until there’s meaningful pressure on banks to reduce their profit margins and pass Fed rate cuts through to consumers, we won’t see the mortgage rate relief that homebuyers desperately need. The Fed has done its part by cutting rates. Now it’s time for banks to do theirs.
As a South and East Bay realtor with Avil Soleiman Brokerage, I help clients navigate this challenging rate environment every day. While we can’t control what the Fed or banks do, we can create strategies that work within current market conditions to help you achieve your homeownership goals.
Want to discuss how to navigate the current rate environment and make the most of your homebuying opportunity? Contact me today for a consultation where we can review your specific situation and develop a strategy that works regardless of what the Fed or banks decide next.