Dec 13 2023

Fed pauses rate hikes: Will mortgage rates drop?

Federal Reserve meeting
Federal Reserve meeting

The results from the Federal Reserve meeting are in. The Fed is pausing for the fourth time this year.

Today, we’re greeted with a welcome announcement. Following the December Federal Reserve meeting, the Fed has confirmed its fourth rate pause of the year. Keeping rates as-is could provide more breathing room for homebuyers.

With no Fed hike, buyers are cautiously optimistic.

As Gargi Chaudhuri, Head of BlackRock’s iShares Investment Strategy, has pointed out, a pause in Fed rate hikes is not the same as a pivot. “A pause is a period where the Fed keeps rates ‘higher’ and monitors the development of the economy and inflation. In the five previous hiking cycles since 1990, the Fed paused an average of 10 months between its last hike and its first cut,” Chaudhuri said.

According to Chaudhuri, the pause following the Federal Reserve meeting may be for several reasons:

  • Both price growth and inflation have begun to slow down—just not enough to start cutting rates.
  • Central bank policy rates (CBPR) reached levels that satisfy the Fed’s guidelines.
  • Uncertainty in banking has led to more stringent lending practices, reducing the need for another hike.

The outcome of the Federal Reserve meeting may be good news for those with HELOCs, Adjustable-Rate Mortgages, and credit card debt, as well as anyone car shopping. A Fed pause means there won’t be another increase in short-term borrowing costs.

This could be good news for homebuyers too. While the Federal Reserve meeting decision won’t necessarily trigger an immediate drop in mortgage rates, a pause indicates that inflation is cooling. If the Fed has been able to successfully control inflation with its previous rate hikes, mortgage rates could start coming down soon.

“The Fed should have strong motivation to keep the Fed Funds Rates [the same] and consider cutting it as inflation continues to moderate. This will mean even lower mortgage interest rates in 2024,” Jessica Lautz, Deputy Chief Economist for the National Association of REALTORS®, explains.

Contact your local Academy Loan Officer to find out where mortgage rates may be heading.

An economic slowdown might also encourage lower mortgage rates. Lower rates are what’s needed for home sellers to reenter the market. One reason that housing inventory levels are so low right now is because many homeowners are unwilling to give up their record-low rate. But if mortgage rates start to drop, it might be enough to entice potential sellers.

A lack of inventory has been endlessly frustrating, but it’s better than the alternative.

During the housing crisis of 2008, there were too many homes on the market. Many listings were foreclosures or short sales. This excess of unsold inventory caused home prices to plummet. In contrast, today’s housing inventory shortage is one factor preventing a 2008-like crash.

Amazingly, homebuyer activity keeps picking up in many areas. ShowingTime’s Showing Index® confirms that recent homebuying traffic is up compared to typical pre-pandemic numbers.

“Despite affordability challenges causing a dip in the demand for homes, there’s still a pool of eager homebuyers looking for a good deal while navigating a low inventory of available homes,” Sabrina Speianu,® data scientist, says.

Prospective buyers and sellers can see this as a positive sign. There are still opportunities to be had in today’s housing market—with more to come as the Fed gets a handle on inflation.

Looking for an affordable mortgage? You’ve got options.

Affordable homeownership isn’t just about the market rate. At Academy Mortgage, we have low/no down payment loans, down payment assistance, and Temporary Buydowns that can lower your mortgage rate for your first few years of homeownership. Reach out for solutions.

Please consult a trusted professional as personal circumstances may vary. No specific results are guaranteed. Not all applicants will qualify. MAC2412-2180103.