Gloomy spring? Homebuyers face mortgage rates of 6% after Fed interest rate stays steady.

The Federal Reserve’s announcement of no immediate rate changes and three cuts before the end of the year is unlikely to bring relief to homebuyers.

“The mortgage market already incorporated that,” Lawrence Yun, chief economist at the National Association of Realtors told USA TODAY. “Consumers who may be looking for (rates of) 3%, 4%, I don’t think it’s going to happen, or even 5%. Consumers need to recognize the new normal.”

The average rate on a 30-year fixed mortgage stood at 6.9% on Wednesday afternoon and is unlikely to dip below 6% before the end of the year.

“I don’t expect a ton of relief this year in terms of lower mortgage rates,” Stijn Van Nieuwerburgh, the Earle W. Kazis and Benjamin Schore professor of real estate at Columbia Business School in New York, told USA TODAY. 

He said that the longer the Fed keeps overall borrowing rates up, the less likely it will be for 30-year mortgage rates to decline. Although the Fed doesn't directly control mortgage rates, its policies influence the price of borrowing across the economy.

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“Given that we already are in a historically expensive market for homebuyers, it certainly doesn’t mean there’s immediate relief forthcoming,” Van Nieuwerburgh said.

The national median home price in the last quarter of 2023 reached $417,700, according to the St. Louis Federal Reserve Bank. After a 20% down payment, homebuyers would need to take out a $334,160 mortgage to finance a home at that price. At 6.9% interest, the monthly payment on that mortgage would hit $2,201 before taxes.

Despite relatively high mortgage rates, there’s still strong competition for small and mid-sized homes, Yun said.

“Multiple offers are still happening on mid-priced homes and below,” he said, “implying there’s not enough supply.”

But some positive signs have emerged for homebuyers.

Yun said the housing supply is slowly picking up in 2024. “Spring buying season or even summer buying season, consumers will have more choices this year compared to last year,” he said, adding that, going forward, even more relief could come in 2025 when “mortgage rates could be closer to 6%.”

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