Fed Holds Rates Steady: What It Means for Mortgage Rates in Spring 2024

The Federal Reserve's recent decision to maintain its benchmark interest rate means mortgage rates are likely to remain elevated, averaging in the upper 6% range, for the foreseeable future. This creates a challenging yet stable environment for spring homebuyers, where economic uncertainty, not Fed policy, is now the primary driver of rate fluctuations. While lower rates would be welcome, analysts caution that a significant drop would likely signal underlying economic weakness.

How Does the Fed’s Decision Directly Impact Mortgage Rates?

The Federal Reserve sets the federal funds rate, which is a short-term benchmark interest rate. However, it does not directly control mortgage rates. Instead, mortgage rates tend to follow the yield on long-term government bonds, like the 10-year Treasury note. These long-term yields are determined by investor expectations for the economy, inflation, and future Fed policy. When the Fed signals a hold on rate changes, as it has, it removes a major source of volatility, but other factors like inflation data and geopolitical events can still cause mortgage rates to move. Based on our experience assessment, the current period of stability is tied to mixed economic signals.

What Are Mortgage Rates Projected to Be This Spring?

According to the most recent data from Freddie Mac, the average rate for a 30-year fixed-rate mortgage was 6.65% for the week ending March 13. Since the start of the year, rates have fluctuated within a narrow band in the upper 6% range, remaining well above the lows seen in the previous fall. The following table illustrates recent average rates for common loan types:

Source: Freddie Mac Primary Mortgage Market Survey

Why Could a Sharp Drop in Mortgage Rates Be a Bad Sign?

It’s intuitive for buyers to hope for lower borrowing costs, but the reason behind a rate decline is critical. As Greg McBride, Chief Financial Analyst at Bankrate, explains, “We want interest rates to decline because inflation declines, not because of economic weakness.” A drop in rates driven by fears of a recession might make homes slightly more affordable initially, but it would also signal broader job market instability and potential declines in home values. The recent slight pullback from a peak above 7% in mid-January was partly fueled by such concerns, highlighting the complex trade-offs in the market.

For spring homebuyers, this environment underscores the importance of focusing on personal financial readiness rather than trying to time the market. Getting pre-approved provides a clear budget, and locking in a rate when you find the right property can protect you from short-term volatility. Given the current stability, there is less risk of a sudden, sharp increase, allowing for a more deliberate home search.