At the most recent Federal Open Market Committee (“FOMC”) meeting, held January 30-31, 2024, the Fed announced that they would not be cutting interest rates. In the official press release, they announced the unanimous vote that maintains the Federal Funds rate in the target range of 5.25% to 5.50%. As reported by the LA Times, the FOMC concluded that it would not be appropriate to reduce the rate until there was greater confidence that the US inflation rate hits closer to the target goal of 2%. At the moment, the unchanged interest rate sits at about 5.4% – a 22-year high.
Although the Federal Funds rate does not directly impact mortgage rates, it shapes the overall tone of the economy, ultimately affecting the housing and mortgage markets. A recent article published by BankRate details how in 2022, the Fed bumped up the rate seven different times. These bumps then subsequently caused mortgage rates to increase drastically, from 3.4% to 7.12% in only nine months. Ultimately these rate increases had a negative effect on the housing market by creating record-high home prices, and pushing mortgage rates to levels that became unaffordable for an increasing number of American.
The FOMC meets twice in a quarter to assess and make decisions on economic conditions and policies. The next meeting is scheduled for the end of March 2024. Although there are several factors that impact mortgage rates such as supply and demand, the bond market and inflation, if the Fed continues to leave the interest rate unchanged, there is bound to be a domino effect that would impact the overall housing market. This means that for first-time home buyers or real estate investors, it will be crucial to keep an eye on several economic indicators in an effort to lock in the best borrowing rate at the right time. Do we expect mortgage rates to steadily decline in the upcoming year or will Americans be forced to shift toward the rental market in response to unaffordable home prices?
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