3:39 p.m. ET, December 13, 2023
The Federal Reserve’s actions this year have had a powerful impact on housing
An aerial view shows a subdivision that has replaced the once rural landscape on July 19 in Hawthorn Woods, Illinois.
Scott Olson/Getty Images
The Federal Reserve’s actions this year had a powerful impact on housing in the United States.
The four quarter-point rate hikes between February and July of this year saw lingering inflation concerns stoke Treasury yields, sending them higher and dragging mortgage rates higher, too.
Mortgage rates tend to track the yield on 10-year US Treasuries, which move based on a combination of anticipation about the Fed’s actions, what the Fed actually does and investors’ reactions. When Treasury yields go up, so do mortgage rates; when they go down, mortgage rates tend to follow. While the Fed does not set the interest rates that borrowers pay on mortgages directly, its actions influence them.
The average rate for a 30-year, fixed-rate mortgage hit its lowest level this year at the beginning of February, at 6.09%. February saw existing home sales grow as buyers took advantage of mortgage rates that were lower than at the end of 2022.
But as mortgage rates have trended higher from February’s low for the year, home sales have dropped every month since, falling from a seasonally adjusted annualized rate of 4.55 million in February to 3.79 million in October, the most recent monthly data. And that crushing sales volume has been because of high mortgage rates.
Mortgage rates crossed over 7% in August, reached a high for the year of 7.79% in October and have come down since.
High rates also factor in to the exceptionally low inventory of homes to buy, another reason there are so few homes sold. Homeowners who bought or refinanced into ultra-low rates in the 2%, 3% or 4% range between 2020 and the beginning of 2022 are unwilling to sell and face buying a home at a much higher interest rate.
The housing market is looking for inflation to come under control, which will bring mortgage rates down. Analysts anticipate mortgage rates to fall moderately in 2024. A forecast from the National Association of Realtor’s chief economist, Lawrence Yun predicts the average rate for 2024 will be 6.3%.
