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The Federal Reserve's forecast brought some needed relief for mortgage rates causing them to drop for the 7th week in a row to 6.82% yesterday, the lowest since May.
While the Fed kept its benchmark rate unchanged on Wednesday, its Summary of Economic Projections nodded to the potential for as many as three rate cuts next year. Daily rates on the 30-year fixed mortgage dipped to 6.82% on Thursday, according to Mortgage News Daily, the lowest since May.
The fed funds rate does not entirely determine mortgage rates—other factors include mortgage demand, inflation, and general economic conditions—but it does help influence them up or down. Mortgage rates on the most popular home loan haven't moved below 7% since July, and the housing market seems to be cheering on Jerome Powell and the central bank's guidance.
As recently as October, mortgage rates hit 8% for the first time since 2000. Now, based on Wednesday's decision and market reaction, the Fed appears on track to help ease housing affordability after two years of tough markets dynamic that both potential buyers and current owners have had to navigate.
Current homeowners who have been reluctant to move because of high mortgage rates could be unshackled, bringing more homes on the market for potential buyers.
Yet it is still possible a sharp drop in mortgage rates throws the housing market further out of whack in the near term, with lower rates opening the gates to a flood of demand before more supply comes online.
"If rates come down too much — and mortgage rates follow — we'll see the current supply-demand imbalance exacerbated as pent-up demand gets released into an undersupplied market, putting upward pressure on home values – and inflation," Jack Macdowell, chief investment officer at Palisades Group, wrote in a note Wednesday.
"Until mortgage rates drop below 6%, it is unlikely that pent-up deferred sales will meaningfully contribute to supply," Macdowell added.
Strategists at Goldman Sachs, meanwhile, wrote in a note prior to the Fed meeting Wednesday that housing starts and home prices will crawl higher in the coming years, while existing home sales will remain flat. - Article provided by Business Insider
If you have any questions or would like personalized advice regarding the current market conditions, please feel free to reach out. Your success in real estate is my top priority.
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