Everything is changing again in the US real estate market – La Grada EN

The US real estate market has been unpredictable for a while. After the pandemic upended the country and saw prices skyrocket in the countryside but plummet in historically High Cost of Living Areas only to flip again soon after, we now are facing a different kind of turmoil. High inflation and high mortgage rates have made it almost impossible for aspiring homeowners to qualify for a mortgage high enough to satisfy the market’s offerings, but there seems to be a small glimmer of hope.

Inflation has taken a slight dip, from 3.5 percent in March to 3.4 percent in April and this could signify the beginning of a trend that could help mortgage rates and thus future homeowners.

Policymakers are cautiously optimistic. Despite the Federal Reserve having expected inflation to be below 2% and then be unable to achieve this goal because of external circumstances, the situation seems to be improving slowly but surely, and while borrowing costs have not yet been lowered, there is a hope that it will happen by the end of the year.

The problem comes from actions taken almost two years ago, when in March 2022, the Federal Reserve aggressively hiked rates in an attempt to slow inflation, pushing up borrowing costs and contributing to a jump in mortgage rates. This made buyers really think twice before buying a home.

Hopes for the real estate market

The Mortgage Bankers Association (MBA) is finding a reason to be very cautiously optimistic about the situation (notice the number of caveats). Mortgage applications jumped up 0.5 percent for the week ending May 10 which along the inflation decrease could mean a decrease in mortgage rates and an increase in purchases.

Joel Kan, the MBA’s deputy chief economist shares in the cautious optimism in a statement made to Newsweek “Treasury yields continued to move lower last week and mortgage rates declined for the second week in a row, with the 30-year fixed rate down 10 basis points to 7.08 percent, the lowest level since early April.”

Other economists seem to share in the hopefulness that this lower inflation rate could indicate a turning point towards the Fed’s 2% target, which would lower mortgage rates. Danielle Hale, chief economist at Realtor.com concurs with this sliver of good news “To see mortgage rates dip below 7 [percent], we’ll need to see inflation back on the path to 2 [percent]. Today’s data was a tiny step in the right direction and will likely provide some stability in rates at the current level and may even lead to some additional declines.”

But the most important thing now is to consider what comes next. The Fed policymakers have a scheduled meeting in June, and while there aren’t high hopes for big changes in the situation, there is an expectation for them to indicate whether the Central Bank is seeing progress on inflation and when they might potentially begin to cut rates.

Dr. Quincy Krosby, chief global strategist for LPL Financial is one of the economists that awaits the news with a positive scope “Inflation-related data continues to be translated as to how the Fed interprets the path of inflation and whether it offers, even at the margin, confidence that inflationary pressures are easing. The Fed will certainly need a series of cooler reports for adjusting its rate easing timetable, but the CPI report suggests that the path toward 2 [percent] is a bit less bumpy.”

And she is not the only one, economists are still hopeful that policymakers may cut rates twice this year, as was programmed in the beginning of the year, which could help lower borrowing costs for mortgages. One of them is Bill Adams, chief economist for Comerica Bank who commented on the issue “Comerica forecasts for the Fed to begin cutting the federal funds rate with an initial cut in September, followed by another in December.”