As the Fed pauses interest rate hikes, will home sales increase?

As the Fed pauses interest rate hikes, will home sales increase?

For the first time since March of 2022, the Federal Reserve opted not to raise interest rates at its meeting. 

The Fed kept its key interest rate at about 5.1% Wednesday after raising it 10 straight times to curb inflation. This follows Tuesday’s report of the lowest inflation rate in two years at just 4% in May. 

Rate hikes impact everything from borrowing from credit cards, to car loans and housing. The average interest rate on a 30-year mortgage this week for people with good credit was 6.92%, according to. 

Federal Reserve chairman Jerome Powell, in a news conference Wednesday, acknowledged that the housing market is very interest rate-sensitive. It’s the first place helped by lower rates.

So would the leveling of interest rates impact the current housing market? 

The real estate market correction will take some time, said Kent Gardner, former chief economist at the 

The United States is unique in Western economies in terms of its locked-in 30-year mortgage interest rates, Gardner said. Most European nations have shorter terms for loans, or variable rates. 

For homeowners who purchased or refinanced a home at rates in the 3% range before the pandemic, they still have 20 to 25 years left on the low interest loans and are unlikely to sell their homes to go into a higher interest rate, Gardner said, describing the scenario as “an imbalance you can’t get out of.” 

Such low rates are a prime reason for the current shortage of single family homes on the market. If the rates recede more, it may solve the inventory crunch, as people may be enticed to sell their homes if they can get another at similar interest rates, said Max Stokes, an agent at Compass Real Estate in Bergen County, New Jersey. 

 “A potential seller that is locked into a low mortgage rate will be more likely to give up their low rate and take advantage of the elevated prices,” Stokes said. 

Home prices increased by 2% nationwide in April of 2023 compared with the same month in 2022, according to 

While the interest rate held steady, the Fed signaled that it may raise rates twice more this year, beginning as soon as next month. 

“We’ll look at data and all the involving outlook and make a decision,” Powell said. 

The labor market has surprised analysts, Powell said. Job creation and wages moving up are driving the economy. 

“We’d like to see credible evidence that inflation is topping out and coming down,” Powell said, noting the 2% inflation benchmark. 

As much of the rate increases occurred last summer into this spring, it makes sense for interest rates to go at a more moderate pace now, Powell said.  


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