Mortgage rates creating ‘tug-of-war’ with affordability: Fannie Mae

The Federal Reserve cut interest rates by 25 basis points at their final meeting of 2024 with a majority of central bank officials now expecting to only cut rates twice in 2025. What kind of impacts could this have on mortgage rates and the US housing market?

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Fannie Mae (Federal National Mortgage Association) chief economist Mark Palim sits down with Josh Lipton talk about more about pricing trends in the housing market.

Fannie Mae’s affiliate organization, the Federal Home Loan Mortgage Corporation (or Freddie Mac), is scheduled to release the latest mortgage rate figures Thursday morning.

“The key issue for the housing market in the United States, for sure, has been affordability, of which high mortgage rates [are] definitely part of that discussion and it’s also being renter affordability,” Palim says. “The Fed today came out and ratified… bond market investor concerns about whether inflation would be as stickier than it looked six months ago, or that they even looked at the beginning of the year. So you should expect mortgage rates to… remain a little higher than they might have otherwise been.”

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Palim describes mortgage rates, a key component for the lock-in effect for homeowners, as being in a “tug-of-war” with housing affordability: “People don’t want to move and give up that 3% mortgage rate and affordability. We started the year with existing home sales running at 4.2 million; we’re ending the year running… around 4 million. So you’re seeing the higher rates relative to where they were a few years ago really starting to affect demand.”

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This post was written by Luke Carberry Mogan.