Boost for Homebuyers From Unchanged Interest Rates

A steady Fed rate means mortgage rates might stabilize in a tight housing market.

A small toy house on a pile of dollar bills on a desk.
(Image credit: Getty Images)

The Fed has given some hope to homebuyers by declining to raise the federal funds rate, a key overnight bank lending rate at its January meeting. Although the Fed rate and mortgage rates move independently, the same market factors drive the rate increases and cuts. 

Inflation, job growth and the overall economic outlook impacts lenders and how they set rates. A steady Fed rate should translate to fewer increases in mortgage rates. But availability and affordability may still be obstacles when shopping for a home. In its statement, the Federal Open Market Committee (FOMC) said "the Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent" and that  "the Committee remains highly attentive to inflation risks."

 Factors squeezing buyers 

Mortgage application volume decreased by 7.2% from one week earlier for the week ending January 31, according to the Mortgage Bankers Association. This is the third consecutive week that mortgage applications decreased.  

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Homebuyers continue to be challenged by low inventory levels and higher mortgage interest rates. Housing starts in December 2023 were 4.3% above the revised November rate and 7.6% above the December 2023 rate.  With many existing homeowners locked in low mortgage rates, inventory will remain a challenge as fewer people list homes. A strong job market has led to fewer forced sales that usually accompany unemployment. These are factors you should watch during peak moving season. 

Peak moving season runs from April through September, accounting for almost 80% of all moves. Better weather and trying to get kids settled before the new school year begins have made June, July and August the most popular months to resettle. Moving “offseason” may be the way to go if the competition is keeping you out of your desired neighborhood or school district. 

Use our tool, in partnership with Bankrate, to compare mortgage rates from several lenders.

Inflation is receding and rates have come down slightly 

Slowing inflation and a small increase in mortgage rates is a good news, bad news situation. The average interest rate for 30-year fixed-rate mortgages increased by .09 basis points to 6.69%, compared to 6.60% last week. Inflation slowed but housing continued to be a major contributor. 

Buying a home can be both terrifying and exhilarating. It’s probably the biggest purchase you will make in your lifetime. Market factors will largely determine what house you can buy, but not what kind of home you create.

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Personal Finance Writer

Donna joined Kiplinger as a personal finance writer in 2023. She spent more than a decade as the contributing editor of J.K.Lasser's Your Income Tax Guide and edited state specific legal treatises at ALM Media. She has shared her expertise as a guest on Bloomberg, CNN, Fox, NPR, CNBC and many other media outlets around the nation. Donna graduated from Brooklyn Law School and University at Buffalo.