The Federal Open Market Committee (FOMC) meets again next week and is expected to interrupt a string of three consecutive rate cuts dating back to September. According to the CME Group’s FedWatch toolRate traders are almost unanimous that the central bank will keep interest rates at a range of 4.25% to 4.5%.
Emanuel Santa-Donato, senior vice president and chief market analyst at the Connecticut-based lender Tomo mortgagetold HousingWire that he expects rates to remain unchanged this month because the Fed “does not want to undo the slow and fragile progress in bringing inflation down to 2%.”
“Chairman (Jerome) Powell has stated several times (in December) that the committee is confident the labor market has cooled sufficiently to return inflation to the 2% target,” Santa-Donato said in written comments. “Since that meeting, job creation has been stronger than expected and the CPI has been lower than expected, a Goldilocks scenario, but one in which I would expect the FOMC to be cautious about overstimulating the economy and labor market through further rate cuts .”
Melissa Cohn, regional vice president for William Raveis Mortgagesaid the December inflation report was positive news. Any major upward movement in consumer prices could force the Fed to raise rates again, she indicated.
“Of course, everyone [in the mortgage market] is very concerned about what will happen now that Mr. Trump has been inaugurated and is back in power, because his policy proposals are highly inflationary,” Cohn added. “But what will be interesting to see is whether he can get all the policies he wants, and to what extent.”
On his first day back in the Oval Office on Monday, Trump issued a slew of executive orders, including directives for federal agencies to study tariffs. The president reportedly said the 25% tariffs on goods from Canada and Mexico would take effect on February 1.
Afifa Saburi, a capital markets analyst for Veterans United Home Loanssaid Treasury yields “remain stable” and this should help mortgage rates “avoid short-term volatility.”
“The bond market is relieved to see that the new government plans to implement rates more gradually than initially expected, which should help avoid drastic price increases and keep inflation in check,” Saburi said.
The latest analysis by Fannie Mae‘s Economic and Strategic Research (ESR) Group, published this week, calls for average mortgage rates of 6.5% by the end of 2025 and 6.3% by the end of 2026. These forecasts are 20 and 40 basis points higher, respectively the previous one. month. As a result, ESR Group lowered its home sales forecast by 2.2% this year and 4% next year.
“Due to the ongoing lock-in effect and affordability restrictions, we currently expect another year of sluggish existing home sales,” Fannie Mae chief economist Mark Palim said in a statement. “A bright spot for affordability is that we also expect income growth to outpace both house price and rental growth this year – and in many markets, new homes are now priced competitively with existing homes and are much more available.”
Santa-Donato believes housing market conditions are giving potential homebuyers a “clear signal” that they should wait for interest rates to fall.
“It’s time to get off the sidelines,” he said. “Prices aren’t going down, and neither are interest rates, so the smartest move now is to get into the market and shop aggressively for the best mortgage rates.”
“Tomo’s own closing data shows that the difference between a good and bad rate can cost homebuyers $300 more per month, which equates to more than $28,000 over eight years. The longer you wait, the more expensive it becomes to buy a house.”
