Housing News

The Fed Leaves Interest Rates Unchanged: How This Will Affect the Housing Market

Homebuyers who were hoping that mortgage rates would drop this summer may be disappointed. However, they may still get a break.

The U.S. Federal Reserve voted not to cut the federal funds rate this week. While different from mortgage rates, the two generally move in the same direction.

The Fed began hiking interest rates in early 2022 to combat high inflation—and mortgage rates steadily began rising as a result. Last fall, the Fed began lowering rates as inflation came down.

However, the Fed has paused the cuts as it waits to see how tariffs and other policies will impact inflation.

“The inflationary threats to the economy slightly outweigh the risk of a recession,” said Jason Obradovich, chief investment officer at New American Funding. “That prevents the [Fed] from lowering rates.”

Mortgage rates averaged 6.81% for 30-year, fixed-rate loans in the week ending June 18, according to Freddie Mac data. That was down slightly from last year, when rates averaged 6.87%.

It’s about a percentage point lower than late October 2023, when rates hit 7.79%.

Typically, the Fed lowers rates to stimulate the economy or combat a downturn. If unemployment rises, the Fed is likely to cut rates.

However, if the Fed cuts rates prematurely, inflation could rise.

“The challenge faced by the market today is the high uncertainty the current tariff battle and immigration enforcement will have on inflation and the jobs market,” said Obradovich.

It may become more affordable to buy a home this year

The good news for homebuyers and homeowners hoping to refinance their mortgages is that the Fed is expected to cut rates twice this year. The first cut is anticipated for September.

This should put some downward pressure on mortgage rates.

In addition, home prices are beginning to come down in many real estate markets across the country. They ticked down in 35 of the nation’s 50 largest housing markets in May, according to Realtor.com.

In addition, nearly a fifth of all home listings underwent a price cut in May, according to Realtor.com.

Lower prices should help with housing affordability. Lower rates could also put homeownership more within reach.

“Demand for housing will be somewhat subdued until mortgage rates get close to the low 6s and high 5s,” said Obradovich.