Inflation Persists, Impacting Home Buyers' Plans

Feb 20, 2024

Despite months of cooling inflation, higher rent and food prices pushed the annual inflation rate to 3.4%, according to the latest Consumer Price Index report. This rise underscores the Federal Reserve's ongoing challenge to achieve its 2% target inflation rate, indicating potential fluctuations ahead.

In December, the Fed sparked excitement in the housing market by hinting at potential interest rate cuts in 2024. However, given inflation's uneven path, borrowers may need to be patient, as rate cuts, if they occur, could be delayed until later in the year.

While the Fed does not directly set mortgage rates, it determines the federal funds rate – the rate at which banks lend to each other overnight. Mortgage rates indirectly tend to rise and fall in anticipation of the Fed's interest rate moves.

Inflation, interest rates, and other economic factors will undoubtedly impact U.S. homebuyers, who are closely monitoring the situation and planning their home-buying strategies. Will 2024 be a better or worse year for homebuyers? 

Many experts anticipate that falling interest rates and increasing inventory could result in more opportunities for homebuyers in the coming months. As rates gradually decline from highs not seen in decades, more housing inventory is expected to become available as sellers who were previously hesitant start listing their homes, providing buyers with more options in an otherwise tight market.

Although interest rates are no longer at the historic lows experienced during and after the pandemic, the fact that they have pulled back from recent highs will likely attract new buyers to the market.

Even if the Fed follows through on promised rate cuts, experts remind borrowers that rates are unlikely to return to the historically low levels of 2020 and 2021 anytime soon.

2024 will be the year buyers begin to adjust to the new realities of the market. Mortgage rates may seem high, but rates of 6% or higher have been the general average in every decade, except for the years following the 2008 recession. Rates of 3% to 4% are the exception, not the norm.

Many experts anticipate increased homebuying activity if mortgage rates fall, as the housing market is currently constrained by a lack of inventory. Lower rates are expected to spur home sales and add much-needed inventory, leading to more transactions.