Federal Reserve offers homebuyers scant relief
Mortgage rates unlikely to drop much this year
The Federal Reserve’s announcement of no immediate interest rate changes and three rate cuts before the end of the year is unlikely to bring relief to homebuyers.
“The mortgage market already incorporated that,” Lawrence Yun, chief economist at the National Association of Realtors, told USA TODAY.
Although the Fed doesn’t directly control mortgage rates, its policies influence the price of borrowing across the economy. The average rate on a 30year fixed mortgage stood at 6.9% on Wednesday afternoon and is unlikely to dip below 6% before the end of the year.
“I don’t expect a ton of relief this year in terms of lower mortgage rates,” said Stijn Van Nieuwerburgh, a real estate professor at Columbia University Business School in New York.
He said that the longer the Fed keeps overall borrowing rates up, the less likely it will be for 30-year mortgage rates to decline.
“Given that we already are in a historically expensive market for homebuyers, it certainly doesn’t mean there’s immediate relief forthcoming,” Van Nieuwerburgh said.
“Consumers who may be looking for (rates of) 3%, 4%, I don’t think it’s going to happen, or even 5%. Consumers need to recognize the new normal,” Yun agreed.
The national median home price in the last quarter of 2023 reached $417,700, according to the St. Louis
Federal Reserve Bank. At that price, after a 20% down payment, homebuyers would need to take out a $334,160 mortgage to finance the home. At 6.9% interest, the monthly payment on that mortgage would hit $2,201 before taxes.
With the Fed now expected to delay rate cuts, some prospective homebuyers may also put their plans on hold, some experts say, leading to “a softer spring selling season,” said Dan Burnett, head of investor product at financial technology company Hometap.
On the other hand, despite relatively
high mortgage rates, there’s still strong competition for more inexpensive homes, Yun said.
“Multiple offers are still happening on mid-priced homes and below,” he said, “implying there’s not enough supply.”
Some positive signs have emerged for homebuyers. Yun said the housing supply is slowly picking up in 2024. “Spring buying season or even summer buying season, consumers will have more choices this year compared to last year,” he said. Going forward, even
more relief could come in 2025 when “mortgage rates could be closer to 6%.”
All that said, if you’ve found a nice, affordable home, the lack of movement on mortgage interest rates shouldn’t stop you from buying it, some experts say.
“You can always buy a house and refinance later if rates fall,” said Sameer Samana, senior global market strategist at Wells Fargo Investment Institute.
Contributing: Medora Lee, USA TODAY