Fed's Held Rate Steady at 5.25-5.50%

There is a glimmer of hope for the housing market as the U.S. Federal Reserve decided against raising interest rates, providing some stability. Over the past year and a half, the Fed's rate hikes have negatively impacted the housing market, aiming to curb inflation and cool down the soaring real estate prices.

While the possibility of another rate hike remains, for now, mortgage interest rates are expected to remain relatively steady. Realtor.com® Chief Economist Danielle Hale believes that maintaining the current rates will not lead to significant changes in mortgage rates or the housing market. Although relief may not be imminent, the situation is not expected to deteriorate further.

The Federal Reserve has increased rates 11 times since March of the previous year. Although these rate changes are distinct from mortgage rates, the two often move in tandem. Mortgage rates currently average 7.18% for 30-year fixed-rate loans, more than double their level just two years ago and the highest they have been in over two decades.

The impact of higher mortgage rates is evident in reduced purchasing power for homebuyers. Additionally, existing homeowners are hesitant to sell their homes and lose their lower rates if they were to purchase a new property at higher rates. Paradoxically, this exacerbates the housing shortage and drives prices even higher. With fewer options available, potential buyers are forced into bidding wars and offering above the asking price.

Consequently, home sales in the resale market have plummeted from an annual pace of approximately 6.5 million to around 4 million today. Devyn Bachman, senior vice president of research at John Burns Real Estate and Consulting, explains that the significant disparity between current mortgage rates and those locked in by homeowners discourages both sellers from listing and buyers from entering the market.

While the Federal Reserve's decision to pause rate hikes does not guarantee improvement, it will likely sustain the current situation until further rate increases or a clear indication of the Fed's intentions. Although rates are anticipated to remain above 7%, it is still preferable to them surpassing 8%.

The Fed has hinted at future rate hikes to combat inflation and achieve its 2% target. With inflation in August already nearly double the goal, another rate hike or the mere expectation of one could lead to an increase in mortgage rates.

Reassuringly, Hale suggests that the end of rate hikes in this cycle may be near, although it might take a few more meetings for the Fed to confidently declare it.