Last week, the Federal Reserve voted to leave the federal funds rate unchanged, keeping it in the current range of 4.25% – 4.5% as policymakers continue to navigate a complex economic landscape.

While the Fed reaffirmed its confidence in the overall strength of the U.S. economy, it also acknowledged rising risks on both sides of its dual mandate: inflation and employment. On one hand, the central bank is increasingly concerned about elevated inflationary pressures, some of which may be heightened in the short term by recent tariff actions. On the other hand, growing unemployment risks are starting to raise red flags as many wonder if tariffs could also cause recession pressures leading to lower consumer spending, potential supply chain issues, and business uncertainty. 

The Fed made it clear that it still sees its current interest rate level as appropriately positioned — offering flexibility to move in either direction depending on how the data evolves. The committee emphasized a watchful stance, working to prevent temporary price shocks from turning into long-term inflation, while being equally cautious not to tighten conditions during a potential softening in the labor market.

This puts the Fed in a delicate balancing act. Traditionally, rising unemployment or a looming recession would lead the Fed to cut rates to stimulate growth. Conversely, persistent inflation would prompt the Fed to raise rates to cool the economy. However, with both risks present at once, the Fed is likely to stay cautious and measured, avoiding any abrupt policy shifts in either direction.

What does this mean for mortgage rates?

Market experts now forecast that 30-year fixed conventional mortgage rates will hover around 6.5% by the end of 2025, with rates dipping into the low 6% range likely around the end of 2026. While that’s a modest improvement from the peaks we’ve seen, it’s a sign that higher-for-longer may be the new norm — at least for now.

🏠 How does this affect homeowners and homebuyers?

If you are a homeowner, your equity is likely to grow at a steady pace of around 3% – 4% year over year based off historical appreciation averages. Over the long-term, from the 1960s to 2024, residential real estate has shown an average appreciation of a little over 4% a year. Due to low inventory, you may also have less market competition if you are thinking about selling your home. Higher interest rates have caused many potential home sellers to wait to list their homes, as most sellers are also buyers. With over 50% of mortgages currently under a 4% rate, many potential sellers are hesitant to give up their low interest rate. This lack of seller activity continues to keep inventory levels low, which in return has kept the real estate market a competitive landscape.

If you are a homebuyer, waiting for lower interest rates could cost you potentially hundreds of thousands of dollars in home equity. With experts predicting a higher-for-longer mortgage rate environment, it could take years before we see rates in the 5% range. If you are ready to buy and are trying to time the market, it may be time to think about what you are willing to do now to take advantage of building home equity sooner.

If you or someone you know has questions about the market, we would love to hear from you! I am happy to schedule a one-on-one appointment and learn how we can be of assistance. 

~Hannah