Housing Market Hope for Potential Homebuyers

The Federal Reserve's decision on interest rates on Wednesday will likely bring good news to homebuyers in the U.S., experts say.

Inflation was at about 8 percent last year when the Fed started its aggressive rate-hiking campaign and peaked at 9.1 percent in June 2022. Since then, the central bank's efforts have proved effective, with inflation gradually coming down and reported at 3.1 percent last month.

As a result of the Fed's pause in its rate-hiking campaign, mortgage rates have dropped for a fifth consecutive week, offering some relief to homebuyers struggling with affordability.

Lower inflation, according to many experts, will lead the central bank to leave its key interest rate unchanged on Wednesday, at the current level of 5.25 to 5.50 percent, in its last decision of the year. Observers say it is still too early for the Fed to start cutting rates.

"My prediction is that the Fed will leave rates unchanged when they conclude their December meeting," Melissa Cohn, regional vice president at William Raveis Mortgage, told Newsweek.

"I believe that they will continue their rhetoric that rates will need to continue to stay high for more time, as the rate of inflation is currently at 4 percent, twice the goal of 2 percent," she said.

Cohn is hoping that the Fed adds "a bit of a dovish tone and broadcasts that they are watching the economy and will adjust rates as needed," she said.

For Cohn, the impact of higher rates over the past 20 months has taken a toll on consumers, and she expects spending to slow down early in 2024 "when all the holiday shopping credit card bills are received."

This, she said, will leave the door open for the Fed to cut rates next year, which she expects to see by the end of the second quarter.

"This is all good news for mortgage rates. They have already declined by more than .75 percent in the past month, and we will look forward to lower and lower rates for the next two years," she said.

Cohn said the U.S. is likely at an inflection point where mortgage rates have come down enough that more buyers are coming back into the marketplace. Now is the time for homebuyers to purchase a home, she added.

"Prices have certainly not gone up, and they're not going to go up until next year because we're in the holiday season," she said. "As such, now's the time to start making a move."

The Federal Home Loan Mortgage Corp., or Freddie Mac, agrees that the mortgage market continues to improve for homebuyers. According to its latest report, the 30-year fixed-rate mortgage—the most popular among Americans—averaged 7.03 percent as of December 7, down from 7.22 the week before. In early October, it reached a 23-year high of 8 percent.

While the National Association of Realtors said t there should be optimism among homebuyers going into 2024, Freddie Mac has been cautious about declaring the recent data a reason to celebrate.

"When rates began to rapidly drop, purchase applications rebounded initially, but this improvement in demand diminished in the last week," Sam Khater, Freddie Mac's chief economist, told Newsweek in a shared press release.

"Although these lower rates remain a welcome relief, it is clear they will have to further drop to more consistently reinvigorate demand," Khater said.