A Closer Look At What The Fed Did Yesterday And How It Will Really Impact Mortgage Lending

The Fed’s decision to stop raising rates yesterday was welcomed by our industry. Everyone agrees that mortgage rates are very high now in comparison to where they’ve been for the last few years and a downward trend on rates would be welcomed. But will this have a huge impact on mortgage lending or just work around the margins? Here’s what industry experts think:

MBA SVP and Chief Economist Mike Fratantoni called the move by the Fed “some relief.” He noted, “We expect that inflation will continue to drop closer to the Fed’s target, the job market will continue to slow, and that mortgage rates should begin to reflect that the Fed’s moves in 2024 will be cuts – not further increases. This should provide some relief in terms of better affordability for potential homebuyers.

“The lack of housing inventory continues to be the biggest challenge for many potential buyers. While homebuilder sentiment is clearly impacted by the recent surge in mortgage rates, permits for single-family homes provide a positive outlook for the pace of construction in the year ahead,” continued Fratontoni. “If mortgage rates trend down in 2024 as we anticipate, the combination of more homes for sale and somewhat lower rates should support stronger purchase volume.”

Michele Raneri, Vice President and Head of U.S. Research and Consulting at TransUnion, added, “Previously, the Fed had seemingly signaled a commitment to being aggressive, potentially even again raising interest rates multiple times before the end of this year to continue efforts to drive down inflation. While they still very well may follow through with that before the end of this year, this week’s announcement indicates that the Fed may believe that the best course of action, for now, is to continue monitoring the economy, and the effects of previous hikes, to determine if and when additional rate hikes are necessary. The decision not to raise rates at present will likely have impacts across the credit markets. In the mortgage market, for instance, consumers who have been holding off may begin to be motivated by the announcement to consider making the home purchase they have been waiting on.”

And while the news of The Fed’s decision to stop raising rates, at least for now, is applauded, many are not ecstatic. “The Fed did the expected … so now let’s get back to the regularly scheduled program; aka. expect the unexpected,” pointed out Bill Corbert, Partner, Managing Director of the Strategy Consulting Practice at BlackFin Group. “The controlling theory is higher for longer probably due to the life size picture of Paul Volker in Jerome Powell’s office. I also believe there is a lot of angst at the Fed over where we are: for example, inflation is measured ex. food and energy and yet I have a colleague who does her parent’s grocery shopping every week, same store, same items, and the cost over the past 2 years is up over 50% so what is the “real” inflation rate? Over the next several quarters could growth be stronger than expected? Weaker? How about both? Same for employment. There are lots of variables in play without a lot of confidence in outcomes so I’ll make a bold prediction: rates will go down after they stop going up! (And when the government stops spending so much money but that is another topic).”

Jim Paolino, CEO at LodeStar, a closing fee expert provider delivering an independent database of service providers and government fees to the mortgage market, summed it up when he noted, “In all honesty, the current situation is quite clear. We shouldn’t anticipate significant improvements in volume for the foreseeable future. However, it appears that we may have reached the lowest point. For those considering buying a home in the coming years and hoping for lower interest rates, it’s advisable to consider making the purchase now. When interest rates eventually decrease, we can expect the true consequences of the housing shortage to emerge, likely driving housing prices even higher.”