On Wednesday, the central bank raised its benchmark interest rate by a quarter percentage point. While it signaled that it was ready to pause, the current economic climate is tense. Bank failures and a possible slowdown in lending are casting a pall over the U.S. economic outlook.<\/p>\n
Mortgage rates fell slightly after the Fed hiked rates. The 30-year was averaging at 6.39% as of Thursday, according to data released by Freddie Mac While the Fed doesn\u2019t move mortgage rates directly, it influences the direction that they go in. Mortgage rates are determined by the market and how it sees the Fed proceeding \u2014 whether it will continue raising interest rates, or slow down. In his press conference, Fed Chair Jerome Powell gave the market and investors reason to believe that he will now back off from raising rates, pushing mortgage rates down.<\/p>\n Economists agree that mortgage rates will fall over the course of this year, and next.<\/p>\n The Fed\u2019s announcement of a hike was \u201chighly anticipated,\u201d Selma Hepp, chief economist at CoreLogic, told MarketWatch.<\/p>\n She expects rates to decline gradually, though remaining above 6% until late this year. One reason for rates to not fall further: Turbulence in the banking sector, Hepp said. Bank closures and an uncertain economic climate may lead to the sector pulling back on lending, which could put pressure on mortgage rates.\u00a0<\/p>\n \u201cNevertheless, homebuyers have been responsive to declining rates since November, while sellers have stayed on the sidelines,\u201d she added.<\/p>\n Mark Zandi, chief economist at Moody\u2019s Analytics, expects the 30-year mortgage to also stay above 6%. Zandi said he expects rates to average at 6.5% this year, but decline by the end of 2024 to close to 5.5%.<\/p>\n \u201cThis assumes a weak economy and decelerating inflation, but no recession,\u201d he added.\u00a0\u00a0<\/p>\n The spread between the 10-year Treasury yield and mortgage rates are unusually high, Zandi explained. The spread goes towards lenders\u2019 costs from mortgage origination to servicing, credit and prepayment risks.<\/p>\n \u201cThis goes to investor concerns about prepayment risk, and will only narrow slowly as the Federal Reserve eases up on its tightening of monetary policy,\u201d Zandi said.<\/p>\n The Mortgage Bankers Association also expects the 30-year mortgage rate to end the year close to 5.5%.<\/p>\n Fannie Mae expects the 30-year to fall to 6% in 2023, and 5.3% in 2024, according to their April housing forecast.<\/p>\n Home prices are expected to stay high, and even rise, as the housing market is hit with a structural problem of low inventory. \u201cLack of supply amid more buyers meant that home prices rebounded this spring and started increasing again,\u201d Hepp said.\u00a0<\/p>\n There were fewer for-sale listings this April compared to last year, a separate report from Realtor.com said. The inventory of homes for sale in April dropped 21.3% as compared to 2022. The median listing price rose slightly to $430,000 from $424,000 the previous month.<\/p>\n CoreLogic\u2019s indexes show increases as well, Hepp said. She expects the annual home-price growth rate to average between 3% and 4% this year, as compared to 2022.<\/p>\n But Zandi, on the other hand, expects prices to drop. Looking at repeat sales, Zandi noted that home prices are down 2%-3% from their peak last summer. \u201cAssuming no recession and the mortgage rate path I just described, I expect national house prices to ultimately decline by almost 10% from the peak-to-trough,\u201d he explained.\u00a0\u00a0<\/p>\n \u201cThis will likely take a couple more years to play out,\u201d he added, \u201cas potential sellers are reluctant to sell their homes for obvious reasons. These price declines are necessary to sufficiently restore housing affordability.\u201d<\/p>\n
\n FMCC,
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\n down from 6.43% the previous week.<\/p>\nEconomists expect rates to keep falling\u00a0<\/strong><\/h6>\n
Economists split on home prices<\/strong><\/h6>\n