Mortgage rates have risen this week, with lenders adjusting to an uncertain economic landscape.
The Federal Reserve met on March 19 and voted to keep the federal funds rate unchanged. However, it signaled the need for more data before making any further changes to its policies. Despite this, mortgage lenders can quickly adjust their rates based on market conditions.
For the week ending March 20, the 30-year fixed mortgage rate averaged 6.8%. This is an increase of 18 basis points from the previous week. A basis point is one one-hundredth of a percentage point.
Fed’s Decision: No Surprises
Leading up to the Federal Open Market Committee (FOMC) meeting, experts widely expected the Fed to keep the federal funds rate steady at 4.25%-4.5%. This decision was in line with expectations and didn’t surprise the market.
Fed Chairman Jerome Powell began the post-meeting press conference by highlighting the strength of the economy. He stated that the economy had made significant progress over the last two years, particularly in reducing inflation and strengthening the labor market.
Powell Cautions on Inflation and Economic Uncertainty
While Powell acknowledged the strength of the economy, he also pointed out the rising inflation. He noted that this could be partly due to the effects of tariffs. The Fed Chairman also mentioned that the uncertainty surrounding certain policies, including trade, immigration, and fiscal matters, adds complexity to the economic outlook.
Despite rising inflation, Powell said that the Fed wasn’t in a hurry to make any immediate changes. He emphasized that the central bank would wait for more economic data before making any further policy adjustments.
Fed’s Inflation Outlook and Future Projections
Looking ahead, Powell suggested that inflation may take longer to reach the Fed’s 2% target. Most central bankers believe that the federal funds rate could drop below 4% later this year and may hover around 3% by 2027. They expect inflation to hit their target by that same year.
Challenges for Homebuyers: Affordability and Inventory
For current and potential homebuyers, two major challenges stand in the way: affordability and a lack of available homes. High mortgage rates and rising home prices have already priced some buyers out of the market.
The solution to the inventory issue would be to build more homes. However, rising costs, partly due to tariffs on building materials, are making construction more expensive. Builders are hesitant to apply for new permits unless they believe homes can be sold at profitable prices.
Recent data shows that new home construction permits fell 6.8% in February 2024 compared to the previous month. This suggests a slowdown in new housing projects, which could mean fewer homes available for buyers in the second half of 2025.
What Does This Mean for Homebuyers?
Given the rising mortgage rates and high home prices, there may not be a perfect time to buy a home. The days of record-low mortgage rates are behind us.
Instead of waiting for an ideal deal, potential homebuyers should focus on what’s best for their personal financial situation. Monitoring market trends can help, but the most important factor is finding a home that fits your budget and needs right now.
