As you explore housing market literature, you may encounter details regarding inflation or recent actions taken by the Federal Reserve (the Fed). However, understanding the direct implications of these factors on your home-buying aspirations is essential. Here’s the essential information you should be aware of.

The Federal Funds Rate Hikes Have Stalled

A key objective of the Federal Reserve is to reduce inflation. To achieve this, they began increasing the Federal Funds Rate, aiming to decelerate economic activity. While this doesn’t directly set mortgage rates, it influences them.

Lately, there are signs of inflation easing, suggesting that these rate hikes are effective in lowering inflation. Consequently, the increments made by the Fed have become smaller and less regular. There have been no hikes since July, as illustrated in the graph below:

Moreover, during the last three committee meetings, the Federal Reserve not only opted against raising the Federal Funds Rate but also indicated the possibility of rate cuts in 2024, as reported by the New York Times (NYT):

“Federal Reserve officials left interest rates unchanged in their final policy decision of 2023 and forecast that they will cut borrowing costs three times in the coming year, a sign that the central bank is shifting toward the next phase in its fight against rapid inflation.”

This signals the Federal Reserve’s belief in the improvement of the economy and inflation. Why does this concern you and your homebuying plans? It could potentially result in decreased mortgage rates and enhanced affordability.

Mortgage Rates Are Coming Down

Mortgage rates are impacted by an array of factors, with inflation and the Federal Reserve’s actions (or lack thereof, as seen recently) playing a significant role. With the Fed currently halting rate increases, there is a growing likelihood that mortgage rates will persist in their downward trajectory, as illustrated in the graph below:

Although mortgage rates may remain volatile, their recent trend combined with expert forecasts indicate they could continue to go down in 2024. That would improve affordability for buyers and make it easier for sellers to move since they won’t feel as locked into their current, low mortgage rate.

Bottom Line

The Fed’s decisions have an indirect impact on mortgage rates. By not raising the Federal Funds Rate, mortgage rates are likely to continue declining. Let’s connect so you have expert advice about changes in the housing market and how they affect you.