Fed Holds Rates Steady But Indicates Three Rate Cuts in 2024. Here’s What That Could Mean for Housing

The Fed left rates unchanged Wednesday but it did indicate it will cut rates three times before the end of the year. The central bank said it needs to see inflation move more sustainably toward its target 2% goal before initiating rate cuts.

“Recent indicators suggest that economic activity has been expanding at a solid pace. Job gains have remained strong, and the unemployment rate has remained low. Inflation has eased over the past year but remains elevated,” the Federal Open Market Committee said in a press release following its two-day meeting on Wednesday.

The central bank maintained the fed funds rate at its current level of 5.25% to 5.5%.

“The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. The Committee judges that the risks to achieving its employment and inflation goals are moving into better balance. The economic outlook is uncertain, and the Committee remains highly attentive to inflation risks.”

The latest Fed news echoes comments Fed Chair Jerome Powell made during his Congressional testimony earlier this month where he struck a similar note of cautious optimism about the direction of the economy and progress on getting inflation under control

Hearing that three rate cuts are coming this year certainly made investors happy as stocks soared. As of press time, the S&P 500 rose 0.7%, reaching an intraday record of 5,200 for the first time. Meanwhile, the Dow added 345 points, or 0.9%, and the Nasdaq Composite jumped 1.1%, according to a CNN report

What this means for housing

With fed rate cuts on the horizon, hopes are up that mortgage rates will eventually fall and help boost much-needed buyer demand and home sales.

But in the immediate future, don’t expect any drastic mortgage rate movements.

“Mortgage rates averaging at 6.5% will be the norm for most of this year. There was no surprise in the Federal Reserve’s statement,” Lawrence Yun, chief economist and SVP of research with the National Association of Realtors (NAR), told RISMedia in an email.

Meanwhile, the Mortgage Bankers Association (MBA) is forecasting that the Fed’s first rate cut will happen this summer.

“Their new projections indicate three cuts for 2024, unchanged from their December projections for 2024, but with one less rate cut expected in 2025. We are forecasting that the first rate cut will be in June, and a total of three rate cuts this year,” Mike Fratantoni, MBA’s SVP and chief economist, said in a statement following the FOMC meeting.

He continued, “The committee did not indicate any changes to the pace of quantitative tightening. We continue to expect longer-term rates, including mortgage rates, to decline gradually over the course of this year.”

With unchanged fed rates for now, mortgage lenders likely won’t make any immediate adjustments. Prospective homebuyers will need to weigh the pros and cons of entering the market at current interest rates, which while not as high as they were in 2023 at nearly 8%, still pose an affordability challenge.

Existing homeowners hoping for a refinance opportunity may have to wait a little longer unless they need to tap equity with cash-out refinance to consolidate high-interest debt.

In other words, we’re in watch-and-wait mode. Sellers might see fewer bidding wars and a more balanced market. Buyers, especially first-timers, will need to use current rates and home prices to measure affordability.

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