Published January 18, 2024

How the Federal Reserve Interest Rate Changes Impact Home Mortgages

Written by The Norman Home Team of Keller Williams Gateway

How the Federal Reserve Interest Rate Changes Impact Home Mortgages header image.

There has been a lot in the news lately about the Federal Reserve reducing their rates and as a result, many buyers are wondering if this means home mortgage rates will be going down. What happens when the Fed changes their interest rates?

The Federal Reserve plays a role in shaping mortgage interest rates through its monetary policy. By using tools like quantitative easing, the federal funds rate, and open market operations, the Fed influences the price of credit.

The federal funds rate, which is the rate at which financial institutions lend to each other, sets the baseline for other interest rates.

The Fed's impact on mortgage rates is twofold.

To boost the economy, it keeps mortgage rates low.
Conversely, tightening the money supply leads to higher rates for mortgage borrowers.

However, it's essential to understand that the Fed doesn't directly set mortgage rates. The rates depend on the supply and demand for mortgage-backed securities in the bond market. High demand results in low rates, and low demand results in high interest rates.

Interest rates in 2023 topped out in the low 8%. According to Realtor.com’s chief economist, Danielle Hale, “mortgage rates will continue to ease in 2024 as inflation improves and Fed rate cuts get closer.” There is a lot of debate right now between experts on what to expect for mortgage rates and Danielle Hale predicts the rate to drop to 6.5% by the end of 2024.

If you're thinking about buying or selling and would like a no-obligation consult to see how we can serve you, contact The Norman Home Team at 443.489.5225! Visit our website for information on all the services we provide We look forward to hearing from you and helping you achieve your goals