Mortgage forecast this week: Fed holds stable interest rates amid economic uncertainty

The Fed kept interest rates stable at its monetary policy meeting this week – despite inflation, increased unemployment and slowing economic growth could force central banks to lower interest rates in late spring or early summer.

The key question for investors is how the Trump administration's economic tightening measures and tariffs will affect the Fed's interest rate forecasts due to recession concerns and uncertain trade policies.

“Policies are not in the preset course,” Fed Chairman Jerome Powell said in a press conference Wednesday. “We don't need to rush to adjust our policy stance, we have more clarity in waiting for benefits.”

The Fed's mission is to maintain maximum employment and include inflation. A slow economy usually requires lower interest rates to stimulate growth, but lower interest rates promote price growth when inflation remains above target.

Nevertheless, the Fed sets short-term benchmark interest rates for lenders, which only indirectly affects the mortgage market. In 2024, the central bank cut three times, but mortgage rates did not drop.

This is because interest rates are driven primarily by the movement of the bond market, especially based on 10-year fiscal yields. Bond yields and interest rates rise or fall depending on how new economic data changes market speculation and risk assessment. Mortgage rates will continue to fluctuate until the impact of government policies becomes clearer.

Read more: How the Fed's decision affects mortgage rates

What is the path to mortgage interest rates now?

Fannie Mae projected mortgage rates, which remained above 6.5% for most of the year. However, lenders base their interest rates on a range of factors and do not set the forecast to stone. Given the instability of the economy, any sign of risk or disruption can lower bond yields and affect the trajectory of mortgage rates.

Alex Thomas, senior research analyst at John Burns Research and Consulting, said mortgage rates may start to drop if there is a possibility of an economic downturn, but they need to bring close to 5.5% of people to the market to get buyers into the market at scale.

While cheap home loan rates are positive for housing affordability, a shaky economy can freeze the housing market. “If lower mortgage rates are the result of the recession, housing demand may be muted,” Thomas said.

Potential homebuyers who have been waiting for mortgage rates to drop in the past few years may need to adapt to the “new normal” of the mortgage market, thus volatility between 5% and 7% over the long term. This seems to be high compared to the 2% rate in recent pandemic times. But experts say it is unlikely that there will be 3% of mortgages without a severe recession. Since the 1970s, the average interest rate for fixed mortgages in 30 years has been around 7%.

Today’s unaffordable housing market is not only the result of high mortgage rates. Over the past few years, long-standing housing shortages, expensive housing prices and loss of purchasing power due to inflation have turned buyers out.

Tips for home buyers today

As the spring home buying season approaches, potential home buyers want to know whether to enter the market or continue to wait off the market. It’s never a good idea to rush to buy a home without having a clear budget.

Here is what the experts suggest before buying a home:

💰Build your credit score. Your credit score will help determine if you are eligible for a mortgage and at what interest rate. A credit score of 740 or higher will help you get a lower interest rate.

💰 Save a bigger down payment. A larger down payment allows you to take out a smaller mortgage and get a lower interest rate from the lender. If you can afford it, a down payment of at least 20% will also eliminate private mortgage insurance.

💰Shopping Mortgage Lender. Comparing loan offers from multiple mortgage lenders can help you negotiate higher interest rates. Experts recommend getting at least two to three loan estimates from different lenders.

💰 Consider the mortgage point. You can earn a lower mortgage rate by purchasing mortgage points, with each point costing 1% of the total loan. One mortgage point equals your mortgage rate drops by 0.25%.

More information on the housing market