Why Mortgage Rates May Continue to Fall

When reading about the housing market, you are likely to come across some information about inflation or recent Federal Reserve (the Fed) decisions. But how do these two factors affect you and your home-buying intentions? Here's what you should know.

The Federal Funds Rate Hikes Have Stalled

One of the Fed's primary goals is to reduce inflation. To accomplish this, they began raising the Federal Funds Rate to slow the economy. Even though this does not directly influence mortgage rates, it does have an effect. 

Recently, inflation has started to cool, a signal that those increases have worked and are bringing inflation back down. As a result, the Fed’s hikes have gotten smaller and less frequent. There haven’t been any increases since July (see graph below):

And not only has the Fed decided not to raise the Federal Funds Rate the last three times the committee met, but they’ve signaled there may be rate cuts coming in 2024. According to the New York Times (NYT):

“Federal Reserve officials left interest rates unchanged in their final policy decision of 2023 and forecast that they will cut borrowing costs three times in the coming year, a sign that the central bank is shifting toward the next phase in its fight against rapid inflation.”

This indicates the Fed thinks the economy and inflation are improving. Why does that matter to you and your plans to buy a home? It could end up leading to lower mortgage rates and improved affordability.

Mortgage Rates Are Coming Down

Mortgage rates are influenced by a wide variety of factors, and inflation and the Fed’s actions (or, as has been the case recently, inaction) play a big role. Now that the Fed has paused the increases, it looks more likely that mortgage rates will continue their downward trend (see graph below):


Although mortgage rates may remain volatile, recent trends and expert forecasts indicate that they may continue to fall in 2024. This would improve buyer affordability and make it easier for sellers to sell because they would not feel as locked into their current, low mortgage rate.

Bottom Line

Mortgage rates are affected indirectly by Fed decisions. Mortgage rates are likely to fall further if the Federal Funds Rate is not raised. Let’s connect so you have expert advice about changes in the housing market and how they affect you.

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