Fed’s Monetary Policy Sparks Enthusiasm
On Wednesday, the Federal Reserve released its Summary of Economic Projections, revealing the potential for up to three rate cuts in the upcoming year. Although the central bank decided to maintain its benchmark rate unchanged, the anticipation of future cuts caused mortgage rates to reach their lowest point in months. While the fed funds rate does not single-handedly shape mortgage rates, it does play a significant role in influencing them. Other determining factors include mortgage demand, inflation, and overall economic conditions.
Since July, mortgage rates on the most popular home loan have not dropped below 7%. However, the recent guidance from Jerome Powell and the Federal Reserve seems to have invigorated the housing market. With the prospect of lower mortgage rates, current homeowners who were previously hesitant to sell may now reconsider, leading to an increase in housing supply.
Impact on the Housing Market
While the Fed’s decision to lower rates aims to alleviate housing affordability issues after a challenging period for potential buyers and current owners, there are potential challenges on the horizon. A significant decline in mortgage rates could trigger a surge in demand before ample supply is available, potentially driving up home values and contributing to inflation. Jack Macdowell, the chief investment officer of Palisades Group, cautioned about the potential imbalance between supply and demand in an undersupplied market.
Redfin, a real estate group, reinforces the notion of declining mortgage rates, projecting rates in the mid-6% range by 2024. Similarly, strategists at Goldman Sachs predict a modest increase in housing starts and home prices over the next few years, while existing home sales are expected to remain steady.