The Fed will make an interest rate decision next week. Here’s what it may mean for mortgage rates.

The Federal Reserve’s flurry of interest rate hikes since March 2022 have taken a toll on home buyers, pushing the typical mortgage rate above 8%, a level not seen since 2000. On Wednesday, the Federal Reserve is set to make another interest rate decision that could impact the home loan market.

The central bank is expected to hold rates steady at its November 1 meeting, according to economists surveyed by FactSet. That comes as credit cards are now charging the highest interest rates on record, and many home buyers have been priced out of the real estate market due to loan costs. 

A pause on rate hikes could provide a backstop against higher borrowing costs, yet it might not immediately translate into lower mortgage rates, according to financial experts. That’s partly because mortgage rate hikes don’t always mirror the Fed’s rate increases, but rather tend to track the yield on the 10-year U.S. Treasury note, which recently hit a 16-year high.

“Based on how [mortgage rates] have consistently risen since September, there’s a decent chance that we’ll end 2023 with the average rate on 30-year, fixed mortgages near, or even slightly above, 8%,” said Jacob Channel, a senior economist at LendingTree. 

Even so, mortgage rates have climbed this year almost in lockstep with the Fed raising its benchmark rate. Investors’ expectations for future inflation as well as global demand for Treasurys can also influence rates on home loans.

The Federal Reserve has turned to rate hikes as its most potent weapon to battle the highest inflation in four decades. While inflation has eased since last year, Federal Reserve Chair Jerome Powell said last week that inflation remains too high, but he also signaled that the Fed may not need to raise rates again — at least in the short term. 

Will mortgage rates go down in 2024?

Still, mortgage rates could ease in 2024, with economists forecasting the Fed could start to cut rates by mid-year, according to FactSet.

“We don’t expect additional Fed rate hikes this year — we think they will pause into next year, and we expect there to be a first rate cut sometime probably toward around the second quarter,” noted Matt Vance, senior director and Americas head of multifamily research for real estate company CBRE. 

In the meantime, home buyers are facing an affordability crisis, with home prices climbing along with rates. The national median home price hit $430,000 in September, up from $400,000 in January, according to Realtor.com. Prices have climbed so high that the average down payment is now between $47,900 and $84,983 in the nation’s 50 largest metropolitan areas, LendingTree said in a study this week. 

Some would-be buyers have paused their house hunting plans due to higher rates and prices. Meanwhile, many homeowners have decided not to sell their property because they don’t want to purchase a new home at today’s elevated borrowing costs. 

Americans may continue to be hesitant to purchase homes next year because of interest rates, analysts at Goldman Sachs said this month.

“Sustained higher mortgage rates will have their most pronounced impact in 2024 on housing turnover,” Goldman Sachs said in a research note this week. “As a result, we expect the fewest annual existing home sales since the early 1990s at 3.8 million.” 

The one-two punch of higher interest rates and home prices have caused a slowdown in the housing market this year. Mortgage applications have dipped in recent weeks, according to the latest data from the Mortgage Bankers Association, and existing homes sales fell 2% in September, according to the National Association of Realtors. 

Despite those challenges, some Americans were still able to buy a home this year, but “today’s housing market is much less energetic than it was during the height of the pandemic,” Channel said. 

The Associated Press contributed to this report.