The big real estate news this week has to do with the Federal Reserve's announcement that it will leave its federal funds rate unchanged as we head into the new year. The Fed also indicated there could be up to 3 rate drops in 2024, which could lead to mortgage rate decreases as well.
In fact, this announcement spurred a change in mortgage rates almost immediately and we saw rates drop from 7.1% down to 6.6% in just two days. This rate drop brought us lower rates than we have seen since May.
Why the immediate drop in mortgage rates, if the Fed rate hasn't changed yet? The announcement from the Fed, that they expect to drop the Fed rate in the future indicates that they believe inflation is coming down. Mortgage rates are very closely tied to inflation rate expectations, so a drop in inflation expectations often leads to a drop in mortgage rates.
What does this all mean for the market? As rates have been higher in the third and fourth quarter of this year, the market has felt sluggish, with some homes continuing to go off the market quickly, but many others lingering. Buyers have been holding out for lower rates and sellers have been hesitant to put their homes on the market due to the "lock in" effect (home owners with low interest rate mortgages on their current homes not wanting to move to a new home with a much higher interest rate.)
If rates continue to drop as we head into the new year, it is likely more buyers and sellers will jump back in the market and we see increased activity from both the buyer and seller side. As spring 2024 approaches it could very well be that we are in store for a busy market activity, just like usual.