Housing News

Homebuyers Catch a Break: The Fed Holds Interest Rates Steady

Homebuyers can breathe a sigh of relief. The U.S. Federal Reserve announced it would hold its short-term interest rates steady at its October meeting.

While the Fed’s benchmark rate and mortgage interest rates are separate, mortgage rates typically move in the same direction as the Fed’s rates. So, if a Fed rate hike looks likely, mortgage rates often rise and vice versa.

Since the Fed didn’t hike rates, mortgage rates aren’t under that additional pressure to rise. However, mortgage rates are more closely tied to the U.S. Treasury bond market. So future Fed increases, the war in Iran, oil prices, changes in the economy, and high inflation could cause mortgage rates to climb.

“The market expects the [Fed] to raise one more time this year and two more next year,” said New American Funding Chief Investment Officer Jason Obradovich.

That isn’t necessarily a bad thing for homebuyers.

“For homebuyers, they have a lot of power on purchases with the sellers,” said Obradovich. “If mortgage rates somehow rise further, that could put some real pressure on home prices.”

Nationally, home prices dipped 1.4% year-over-year in September, according to Realtor.com.

“We do believe rates are going to come down middle to late next year,” said Obradovich.

If that happens, more buyers are expected to enter the housing market, leading to bidding wars and more offers over the asking price.

“So, buyers should look to take advantage of temporarily higher rates and a slower time of year to negotiate the best deal they can before next spring," said Obradovich.

The Mortgage Bankers Association (MBA) expects mortgage rates will average 7.3% for 30-year, fixed-rate loans in the fourth quarter of the year. The industry group also anticipates rates will stay above 7% in 2027.

That’s partly because the MBA predicts the Fed will raise rates in December and again early next year.

“Inflation remains well above the Fed’s target, and while the job market is not strong, we expect that the [Fed] will continue to focus intently on pushing inflation down to its 2% inflation target,” said MBA Chief Economist Mike Fratantoni in a statement.