In an effort to tame out-of-control inflation, The Federal Reserve (Fed) has been focused on steadily increasing the key short-term interest rate for the past 10 consecutive cycles. With this said, on June 15, 2023, the Fed announced that it would be pausing its series of interest rate hikes. This marks the first time in 15 months that the Fed has not raised rates. The decision to pause rate hikes comes as inflation has begun to cool, and as the Fed seeks to assess the impact of its previous rate hikes on the economy. Of course, this is welcomed news to many potential buyers and sellers in the real estate market.
What does this mean for the mortgage interest rate
As you can imagine, the Fed’s decision to pause its interest rate hikes comes on the heels of an improved inflation rate which currently sits at 4% annually as of May 2023. Although this is its lowest level in two years, it is still not at the Fed’s target inflation rate of 2%. As an additional bit of good news, this also marks the first month in two years that wage growth outpaced consumer price inflation, thus improving the average standard of living for many Americans.
So what does this mean for the typical mortgage interest rate moving forward? First of all, mortgage rates are not directly tied to the Fed’s benchmark rate but are often influenced by it. However, mortgage interest rates are closely tied to the 10-year Treasury bond, which responded this week to better inflation news with a rate decline to 3.7%. The exact impact of the Fed’s decision on mortgage interest rates is difficult to predict. However, it is likely that mortgage interest rates will fall by at least a few basis points in the near term. This could make it more affordable for home buyers to purchase a home.
It is important to note that the Fed’s decision to pause rate hikes is not a sign that the central bank is abandoning its efforts to combat inflation. The Fed is still committed to bringing inflation down to its 2% target. However, the Fed believes that it can now do so without raising interest rates further during this cycle. With this said, the Fed did signal that two more benchmark-rate increases are likely this year as it continues to manage inflation. Of course, this will depend on where inflation is over the coming months. If we continue to see inflation come down closer to the 2% target, buyers and sellers could see some relief in the mortgage interest rate.
Are you thinking about buying or selling in the South Florida area? We can help! Contact Natasha at Live South Florida Realty, Inc. today! Also, don’t forget to download the most comprehensive South Florida real estate app available!