FINANCE
Federal Reserve to lower federal funds rate: How will this impact mortgage rates through the rest of the year?
Housing affordability remains a major issue even as the Fed moves to cut interest rates, which should lower the price of a home loan.
Federal Reserve Chair Jerome Powell announced on Wednesday afternoon that the US central bank would lower the federal funds rate by half a percent. Citing increasing unemployment and moderate improvements in price stabilization, Chair Powell explained that the Federal Open (FOMC) believed it was time to begin bringing rates down to see how the economy responded.
When we will begin to see the impact of the Fed’s decision
For many, the change in monetary policy prompts questions related to how it will impact the housing market, specifically mortgage rates on 15- and 30-year fixed-rate loans. In the short term, those hoping to secure a loan at a lower rate or refinance their current mortgage might not find much relief. Each Thursday, weekly data on changes to average mortgage rates are published. Those scheduled for release tomorrow are not likely to reflect the Fed’s decision, but next week’s figures will provide greater evidence as to how this rate cut is beginning to affect the mortgage market.
The figures from last week show that rates are falling but remain high relative to pre-pandemic levels. With rising housing prices, higher mortgage rates lead to some buyers being priced out of the market. First-time homebuyers can face considerable challenges. A few extra percentage points tacked onto their mortgage can increase their monthly payment beyond what they could afford.
According to the Federal Housing Finance Agency (FHFA), the percentage of affordable homes in 2023 fell by three percent to twenty percent. The agency calculates this figure by comparing the prices of all “all multifamily properties” and identifying the “share of units that are affordable for households with extremely low income,” which the federal agency considers “less than 50 percent of Area Median Income.” With prices rising 5.7 percent over the last year, affordability within the market is continuing to shrink, placing the dream of owning a home further and further away for many families.