Key Takeaways:

• The Federal Reserve’s sixth consecutive hold on the federal funds rate was announced yesterday.
• Fed rate decisions do not directly dictate mortgage rate movements; however, they can have a ripple effect on lender rates.
• Inflation, exceeding the Fed’s 2% target, plays a crucial role in determining mortgage rates.
• Mortgage rates hit a 20-year high in October but later dropped over a percentage point. Recent increases in the 30-year rate are primarily fueled by rising inflation.
• The Fed’s rate hold is expected to have a lesser impact on 2024 mortgage rates compared to inflation trends for the rest of the year.

The Web of Factors That Drives Mortgage Rates

There is a common belief that fluctuations in the Federal Reserve’s federal funds rate directly influence mortgage rates. However, the relationship between them isn’t as straightforward. While the central bank’s actions more significantly affect short-term rates, various economic elements, such as inflation, consumer demand, and market conditions, play a pivotal role in shaping mortgage rates.

Over the past two years, the Fed’s aggressive rate hikes resulted in a historic surge in mortgage rates. Despite this, the intricate interplay of multiple factors often causes mortgage rates to move independently from the fed funds rate.

The Fed Is on Hold, But Mortgage Rates Have Lately Climbed

2023 witnessed a significant rise in mortgage rates, with the 30-year average hitting unprecedented highs. Although rates later dropped, recent increases have been driven by climbing inflation rates, despite the Fed maintaining its rate since last July.

The resurfacing inflationary pressures saw a sudden spike in mortgage rates following a recent inflation report, indicating the complexity of factors influencing rate movements.

What 2024 Fed Decisions Could Mean for Home Buyers

The Federal Reserve, in its latest statement, signaled that rate cuts are contingent upon a sustained decline in inflation, hinting at a possible extension of the current rate hold. While hopes are pinned on reducing inflation levels, immediate prospects for significant declines in mortgage rates remain uncertain.

Market experts suggest that mortgage rates may persist at higher levels due to persistent inflationary challenges. Any future rate cuts by the Fed are anticipated to be gradual, reflecting a more restrained approach compared to past rate adjustments.

How We Track the Best Mortgage Rates

The national average rates mentioned are based on data from Zillow Group Marketplace and reflect rates from 40 lenders. These rates are calculated assuming an 80% loan-to-value ratio and a credit score ranging from 680 to 739. Actual rates may vary based on individual qualifications.