The Federal Reserve's Rate Cut and Its Impact on Mortgage Rates and the US Housing Market

As the Federal Reserve cut interest rates by 25 basis points at their final meeting of 2024, the housing market is bracing itself for potential changes in mortgage rates. With a majority of central bank officials now expecting to only cut rates twice in 2025, experts are weighing in on what this might mean for the US housing market.

Fannie Mae's Chief Economist Weighs In

Fannie Mae's chief economist, Mark Palim, sat down with Josh Lipton to discuss the implications of the Fed's rate cut on mortgage rates and the housing market. According to Palim, affordability remains a key issue in the US housing market, with high mortgage rates being a significant contributor to this problem.

"The key issue for the housing market in the United States has been affordability," Palim explained. "Of which high mortgage rates are definitely part of that discussion, and it's also being renter affordability." He noted that the Fed's decision to cut interest rates by 25 basis points is likely to have a minimal impact on mortgage rates, given the current market conditions.

The Impact of Mortgage Rates on Affordability

Palim described mortgage rates as being in a "tug-of-war" with housing affordability. "People don't want to move and give up that 3% mortgage rate and affordability," he said. This is particularly true for existing homeowners who are hesitant to sell their homes due to the high costs associated with moving, such as higher mortgage rates.

To illustrate this point, Palim pointed out that existing home sales have been declining in recent months. "We started the year with existing home sales running at 4.2 million," he said. "We're ending the year running around 4 million. So you're seeing the higher rates relative to where they were a few years ago really starting to affect demand."

Freddie Mac's Mortgage Rate Figures

Freddie Mac, Fannie Mae's affiliate organization, is scheduled to release the latest mortgage rate figures on Thursday morning. These figures are expected to provide further insight into the impact of the Fed's rate cut on mortgage rates and the housing market.

According to Palim, the recent rate cut by the Fed will likely have a minimal impact on mortgage rates, given the current market conditions. "The Fed today came out and ratified bond market investor concerns about whether inflation would be as stickier than it looked six months ago," he said. "So you should expect mortgage rates to remain a little higher than they might have otherwise been."

The Lock-In Effect and Its Impact on Homeowners

Palim noted that the lock-in effect, where homeowners are hesitant to sell their homes due to high mortgage rates, is a significant concern for the housing market. This is particularly true for existing homeowners who are reluctant to give up their lower mortgage rates.

"The key issue here is affordability," Palim emphasized. "People don't want to move and give up that 3% mortgage rate and affordability." He noted that this reluctance is driving down demand in the housing market, with existing home sales declining in recent months.

Conclusion

The Federal Reserve's rate cut by 25 basis points at their final meeting of 2024 has significant implications for mortgage rates and the US housing market. With a majority of central bank officials now expecting to only cut rates twice in 2025, experts are weighing in on what this might mean for the housing market.

Fannie Mae's chief economist, Mark Palim, noted that affordability remains a key issue in the US housing market, with high mortgage rates being a significant contributor to this problem. He emphasized that the recent rate cut by the Fed will likely have a minimal impact on mortgage rates, given the current market conditions.

As the housing market continues to evolve, it is clear that affordability remains a major concern. With existing home sales declining in recent months and homeowners hesitant to sell their homes due to high mortgage rates, the impact of the Fed's rate cut on mortgage rates and the housing market will be closely watched by industry experts and investors alike.

The Federal Reserve's Rate Cut and Its Impact on Mortgage Rates and the US Housing Market

As the housing market continues to evolve, it is clear that affordability remains a major concern. With existing home sales declining in recent months and homeowners hesitant to sell their homes due to high mortgage rates, the impact of the Fed's rate cut on mortgage rates and the housing market will be closely watched by industry experts and investors alike.

According to Palim, the recent rate cut by the Fed is likely to have a minimal impact on mortgage rates, given the current market conditions. "The key issue here is affordability," he emphasized. "People don't want to move and give up that 3% mortgage rate and affordability."

Palim noted that this reluctance is driving down demand in the housing market, with existing home sales declining in recent months. "We started the year with existing home sales running at 4.2 million," he said. "We're ending the year running around 4 million. So you're seeing the higher rates relative to where they were a few years ago really starting to affect demand."

As the housing market continues to evolve, it is clear that affordability remains a major concern. With existing home sales declining in recent months and homeowners hesitant to sell their homes due to high mortgage rates, the impact of the Fed's rate cut on mortgage rates and the housing market will be closely watched by industry experts and investors alike.

Palim emphasized that the lock-in effect, where homeowners are hesitant to sell their homes due to high mortgage rates, is a significant concern for the housing market. "The key issue here is affordability," he said. "People don't want to move and give up that 3% mortgage rate and affordability."

He noted that this reluctance is driving down demand in the housing market, with existing home sales declining in recent months. "We started the year with existing home sales running at 4.2 million," he said. "We're ending the year running around 4 million. So you're seeing the higher rates relative to where they were a few years ago really starting to affect demand."

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