Anyone looking for a home right now will tell you that mortgage rates are high. As of November 10, average rate of 2.96% that borrowers were getting on 30-year fixed-rate mortgages in 2021.was 7.14% for a 15-year fixed mortgage and 7.87% for a 30-year fixed mortgage. That's a far cry from the
These high rates have left many potential homeowners wondering when they might get some relief. But if this relief is going to come, it will likely be preceded by action from the Federal Reserve.
While the Fed does not directly set mortgage rates, it does set the federal funds rate, which has a big impact on rates offered on consumer products, like savings accounts and mortgages. With the Fed scheduled to meet again on Dec. 12-13, many people considering buying a home are wondering how this meeting will impact rates as the calendar.
Will mortgage rates go down after the next Fed meeting?
Whether or not mortgage rates change dramatically after the December Fed meeting – the final meeting of 2023 – depends on what action the Fed takes on the federal funds rate. There are several factors that go into the Fed's decision.
"Their decision to raise rates, hold rates or cut rates is really based on inflation and unemployment," says Nick Covyeau, a certified financial planner at Swell Financial.
Inflation has been the big driver of the rate increases over the past 18 months, as high inflation rates have led the Fed to raise rates in an attempt to decrease consumer spending.
"We understand the hardship that high inflation is causing, and we remain strongly committed to bringing inflation back down to our 2 percent goal," Jerome Powell, the chair of the Fed, said in a press conference after the last Fed meeting on November 1..
What if the Fed raises interest rates?
The Fed has chosen to keep rates paused for the past two meetings, leading some analysts to speculate that the days of rate increases are over. Powell, though, says that the Fed is willing to raise rates again if economic indicators point to that being the best course of action. "The Committee will always do what it thinks is appropriate at the time," he says.
If the Fed does choose to raise interest rates in December, it is possible that the mortgage rate will go up alongside the federal funds rate.
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What if the Fed cuts interest rates?
First things first — it is doubtful that the Fed will cut interest rates. The body has set a target inflation rate of 2%, and while the 3.7% rate in September is much better than the more than 9% rate, it likely isn't going to lead to rate cuts. There are two more inflation reports scheduled before the next meeting, though, so it is possible that a drastic change will lead to unexpected action by the Fed.
What is more likely, though, is modest interest rate cuts in the second half of next year, after inflation is tamed.
"We believe that will be accomplished by the end of the first half and rates will start to go down," says Doug Duncan, senior vice president and chief economist at Fannie Mae.
Duncan also notes that consumers shouldn't expect a return to the low rates of the 2010s anytime soon. Those rates were so low largely as a result of the 2008 financial crisis. From 1975 to 2009, the average interest rate for a 30-year fixed-rate mortgage never dropped below 5%, per TheMortgageReports.com.
That said, if the Fed does end up cutting rates in December, it is reasonable to expect that mortgage lenders will start offering lower rates to consumers.
What if the Fed leaves rates untouched?
It is possible that the Fed will choose to pause rates for the third straight meeting. Inflation is still a problem, but it's not out of control like it appeared to be in 2022, so there's a chance that the Fed could leave rates steady.
If the Fed does choose to pause rates, consumer lending rates, including mortgages, could remain near the levels that they have been at recently.
The bottom line
Whether or not mortgage rates change after the next Fed meeting will depend largely on what actions the Fed chooses to take. The Fed's decision, in turn, will be based on reports about inflation, unemployment and other economic factors. If the Fed does decide to raise or lower the federal funds rate, mortgage and other consumer lending rates may rise or fall as well. If the Fed pauses rates yet again, rates are likely to stay at or near their current levels.
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