Possible Reasons For A Further Decline In Mortgage Rates

Why Mortgage Rates Could Continue To Decline

When delving into information about the housing market, you'll likely encounter discussions about inflation and recent decisions from the Federal Reserve (the Fed). But how do these factors influence you and your plans to buy a home? Here's what you should be aware of.

The Federal Funds Rate Hikes Have Stalled

The Fed's primary objective is to curb inflation and to achieve this, they initiated increases in the Federal Funds Rate to slow down the economy. While this doesn't directly dictate mortgage rates, it does have an impact.

As of late, inflation has started to ease, signaling that these increases have been effective in bringing inflation under control. Consequently, the Fed's rate hikes have become smaller and less frequent. In fact, there have been no increases since July (refer to the graph below):


Furthermore, not only has the Fed refrained from raising the Federal Funds Rate in the last three committee meetings, but they have also hinted at possible rate cuts in 2024. According to the New York Times (NYT):

"Federal Reserve officials left interest rates unchanged in their final policy decision of 2023 and forecast that they will cut borrowing costs three times in the coming year, a sign that the central bank is shifting toward the next phase in its fight against rapid inflation"

This suggests that the Fed believes the economy and inflation are improving. Why does this matter for your homebuying plans? It could potentially result in lower mortgage rates and enhanced affordability.

Mortgage Rates Are Coming Down

Mortgage rates are influenced by various factors, with inflation and the Fed's actions (or lack thereof, as seen recently) playing a significant role. With the Fed halting rate increases, there is a greater likelihood that mortgage rates will continue their downward trajectory (refer to the graph below):


While mortgage rates may experience some volatility, their recent downward trend, coupled with expert forecasts, suggests the possibility of further declines in 2024. This would enhance affordability for buyers and facilitate easier moves for sellers, as they won't feel as tied to their current, low mortgage rates.

Bottom Line

The Fed's decisions indirectly impact mortgage rates. By abstaining from raising the Federal Funds Rate, there is a likelihood that mortgage rates will continue to decrease. Rely on a reliable real estate expert to provide you with knowledgeable advice regarding changes in the housing market and their implications for you. Contact us today.

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