As you delve into housing market information, you'll likely encounter details about inflation and recent decisions by the Federal Reserve (the Fed). But how do these factors affect your plans to buy a home? Let's break it down.

The Fed's Move on Federal Funds Rate The Fed aims to curb inflation, and to achieve this, they initiated hikes in the Federal Funds Rate to slow down the economy. While this doesn't directly determine mortgage rates, it does have an impact.

Recently, signs of inflation cooling have emerged, indicating the success of the Fed's measures. Consequently, the Fed's rate hikes have become smaller and less frequent, with no increases since July (refer to the graph below):

Notably, the Fed not only refrained from raising the Federal Funds Rate in the last three committee meetings but also hinted at potential rate cuts in 2024, as reported by the New York Times:

"Federal Reserve officials left interest rates unchanged in their final policy decision of 2023 and forecast that they will cut borrowing costs three times in the coming year, a sign that the central bank is shifting toward the next phase in its fight against rapid inflation."

This suggests the Fed's confidence in economic and inflation improvement. So, why does this matter for your home-buying plans? It could lead to lower mortgage rates and improved affordability.

The Descent of Mortgage Rates Various factors influence mortgage rates, with inflation and the Fed's actions (or inaction, as seen recently) playing a significant role. With the Fed pausing its increases, there's a higher likelihood that mortgage rates will continue on a downward trajectory (refer to the graph below):

While mortgage rates might exhibit some volatility, their recent trend, coupled with expert forecasts, suggests a potential continued decline in 2024. This could enhance affordability for buyers and facilitate sellers in making their move without feeling tied to their current, low mortgage rates.

In Conclusion

The Fed's decisions, though indirectly impacting mortgage rates, are likely to contribute to their decline by not raising the Federal Funds Rate. Let's connect so you can receive expert guidance on navigating changes in the housing market and how they specifically affect your home-buying journey.