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Fed Rate Cut: Why Mortgage Rates Won't Budge
13 Dec
Summary
- Federal Reserve's rate cut of 0.25% to 3.5%-3.75% won't impact mortgage rates.
- Markets have already priced in the Fed's expected interest rate reduction.
- Home prices, not just mortgage rates, are the primary driver of affordability crisis.
The Federal Reserve has enacted its third consecutive interest rate reduction, lowering the federal funds rate by 0.25% to a range of 3.5% to 3.75%. This move, aimed at supporting a softening labor market, is unlikely to influence mortgage rates as financial markets had already factored in the change. Experts note that mortgage rates are more closely tied to longer-term bond yields, which respond to new economic data concerning jobs and inflation, rather than the Fed's short-term policy adjustments.
While the Fed's cut aims to stimulate the economy, its direct impact on prospective homebuyers' borrowing costs is minimal. Current mortgage rates hover around 6.3%, a significant increase from pandemic-era lows but down from the 8% peak of October 2023. Projections suggest the Fed may hold rates steady for the near future, with inflation at 3% and a weakening labor market.
The article emphasizes that the broader housing affordability crisis is significantly driven by home prices, which have surged over 50% since 2020. Even a zero-interest mortgage would not make homeownership accessible in many major U.S. cities, underscoring that elevated property values, rather than interest rates alone, are the primary barrier for new and existing homeowners.
