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As anticipated, the Federal Reserve did not alter its short-term interest rate today, keeping it at 5.375%. The Fed did, however, indicate the likelihood of several cuts later in the year. The bond market, including mortgage-backed securities, has already lowered the longer-term interest rates in anticipation of the Fed's future policy.
Let's recall that before the COVID-induced economic lockdown, the Fed funds rate was near 2%, and the 30-year fixed mortgage rates were at nearly 4%. We will not return to this level this year or next year. The budget deficit remains high, and the various inflation metrics remain above the comfort level. That means the mortgage rates will likely be in the 6% to 7% range for most of the year. This current rate is lower compared to the high of 8% a few months ago, which is helping to improve housing affordability. More homebuyers will return to the market. Many delayed home sellers may be willing to give up 3%-4% rates as life circumstances have changed, thereby boosting inventory. Home sales will no doubt rise this year.
