Housing News

The Fed Voted Not to Move Interest Rates. But Mortgage Rates May Still Ease

Those hoping the U.S. Federal Reserve would slash interest rates and mortgage rates would fall were likely disappointed.  

The Fed voted to hold interest rates steady at its June meeting. While mortgage rates are influenced by the Fed’s moves, they are separate from the Central Bank’s short-term interest rates.

With inflation remaining elevated and employment still strong, there was little incentive for the Fed to cut rates. Its mandate is to bring down inflation by raising rates and stimulate the economy by lowering them when unemployment is high.

“At the beginning of the year, markets expected the Fed to begin cutting rates by midyear,” said First American Deputy Chief Economist Odeta Kushi in a statement. “[However,] the conversation has shifted from ‘When will they cut?’ to ‘Will they cut at all?’”

The potential end to the war in Iran and the appointment of new Fed Chair Kevin Warsh could give the Central Bank more room to lower rates in the future.

“The war clearly is another variable and how much it will move inflation,” said New American Funding Chief Investment Officer Jason Obradovich. “There are so many variables with a new [Fed] chair and possible direction” of the Central Bank.

If the Fed indicates a rate cut is likely on the horizon, mortgage rates could come down. That would make buying a home more affordable, giving the housing market a boost as more buyers get off the sidelines.

Mortgage rates averaged 6.52% for 30-year, fixed-rate loans in the week ending June 11, according to Freddie Mac data. That was up about half a point from 5.98% at the end of February before the war in Iran began.

“Housing doesn’t need perfect mortgage rates, it needs enough certainty for buyers and sellers to act,” said Kushi. “The demand is there. Buyers are simply waiting for confidence in the direction of inflation, rates, and the economy.”