A year and a half ago the popular catchphrase among realtors encouraging their clients was “marry the house, date the rate.” Most of those daters have settled into long-term relationships at this point. Prospective homebuyers, or those who bought hoping to refinance when rates come down are likely facing a lengthy wait.
The U.S. Federal Reserve held its benchmark interest rate at the current target range of 5.25% to 5.5% during its latest meeting on Wednesday. In a statement, the Fed’s Open Market Committee cited a “lack of further progress” on bringing inflation down to its 2% target. Mortgage rates follow the bond market, and this week, the average rate on a 30-year fixed mortgage jumped to 7.22%. That was its highest level since November, and more than double what they were two years ago.
Mortgage rates are not pegged directly to the Fed’s benchmark rate. However, they closely follow yields on 10-year Treasury notes, which track investor expectations about the economy, inflation, and future Fed rate moves.
Fed Chair Jerome Powell agrees the borrowing rates are “painful and inconvenient” but reiterated that the Fed is committed to bringing inflation back down to its target range of 2%.
Looking ahead, analysts don’t view a rate cut as likely until the Fed’s Sept. 18 meeting, with a 54% probability of a rate cut during or before that meeting, according to FedWatch. By the next meeting, on Nov. 7, the probability of a cut rises to 66%. The Fed’s final meeting of the year is on Dec. 18, and bond traders see an 82% chance of a rate cut by then. The good news is chances of rate increases this year are slim to none, as the Fed has signaled it is not considering further moves higher unless the inflation picture changes dramatically.
Mortgage rates may begin marching lower before the Fed makes a rate cut official, as new inflation and economic data make the central bank’s path forward more clear to markets.
Any buyer in the market knows, competition is still fierce, especially in the $2mm and under price range. That competition will only heat up once rates do come down, so if you can afford the payment for a little while longer than originally anticipated, getting into a house now is still probably easier than it will be later this year.
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