Housing Market on Rocky Ground After Recent Mortgage Rate Announcement

Buyers holding out hope for a cheaper mortgage rate in 2024 due to the Federal Reserve lowering rates may need patience.

The housing market was hoping for a break from the inflationary pressures caused by COVID, and the Fed’s rate rises meant to stabilize the market. Three policy changes are expected to take place later this year. But Thursday’s comments by Minneapolis Federal Reserve Bank President Neel Kashkari about the Fed’s inflation statistics not matching its expected patterns cast doubt on the possibility of such lower rates.

Kashkari discussed the Federal Reserve’s dilemma in an interview with Pensions & Investments.

He said this finding makes future policy choices that may affect mortgage rates for the better more difficult since it calls into question the anticipated trajectory toward the Fed’s 2% inflation objective.

Kashkari’s position on interest rate reductions mirrored his uncertainties. In March, he wrote down two cuts for the year if inflation keeps falling back toward the 2 percent target. With inflation stubbornly high, he is now questioning the need for such rate cuts, saying if they continue to see inflation, it would make him question whether it would be necessary to do those rate cuts at all.

According to experts, the home market will see higher mortgage rates for a more extended period of time as a result.

His remarks reflect a more generalized feeling of unpredictability in the home market, which is heavily impacted by the precarious balance of economic data. Mortgage rates have risen significantly from a year ago, with Freddie Mac estimating an average of 6.82%. This number is prohibitive for many would-be homeowners, even if it is below the 7% threshold seen in earlier variations.

According to Khater, the housing market is adapting in a new manner, even if the Federal Reserve cannot decrease rates due to a recent spike in consumer price inflation to 3.2% yearly.