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The Fed Holds Interest Rates Steady: Will It Impact the Housing Market?

By U.S. News & World Report

The Federal Reserve opted to hold interest rates steady on Wednesday, just like it did back in January.

If you’re in the market for a home purchase, or if you’ve been waiting for mortgage rates to come down so you can sell your home, you may be wondering how the Fed’s latest decision will impact the housing market. The quick answer? Not all that much.

The Federal Reserve’s Role in Mortgage Rates

The job of the Federal Reserve is to oversee monetary policy. The Fed can lower or raise its benchmark interest rate, known as the federal funds rate, to help boost the U.S. economy out of a slump or tame rampant inflation. Ultimately, the Fed’s goal is long-term economic stability.

When we talk about the Fed pausing interest rates at its most recent meeting, it means the Fed opted not to lower or raise its federal funds rate, which is the rate banks charge each other for overnight borrowing.

When the federal funds rate rises and falls, it tends to influence other consumer borrowing rates, like loan and credit card rates. However, the federal funds rate doesn’t typically have a very large impact on mortgage rates.

“Mortgage rates are typically priced off the 10?year U.S. Treasury yield,” explains Kurt Funderburg, chief investment officer for Byline Bank’s wealth management group. “The mortgage rate reflects the 10?year rate plus a spread that compensates investors for interest rate risk and other market factors.”

Still, the Fed’s decisions can ripple through the mortgage market.

“Federal Reserve interest rate decisions influence mortgage rates indirectly,” Funderburg says. “Over time, long?term rates and, by extension, mortgage rates tend to follow the broader direction of Fed policy. In addition, nonrate policy tools such as quantitative easing or quantitative tightening, which involve the purchase or sale of U.S. Treasury securities and/or mortgage?backed securities, also affect the overall level of interest rates and mortgage pricing.”

[Read: Best Mortgage Lenders]

A Rate Pause Changes Little

Given the relationship between the Fed’s interest rate decisions and mortgage rates, March’s pause changes very little in terms of borrowing costs, says John Carbone, associate broker and global real estate advisor with Sotheby’s International Realty.

“The Fed holding rates steady is already priced into the bond market, and so we should not expect that much of an impact on mortgage rates,” he explains. Rather, there are other factors much more likely to influence mortgage rates.

“The bigger and not insignificant variables right now all center around uncertainty,” Carbone says. “Inflation is still not where it should be, tariffs are still gumming up free trade, and the U.S./Iran conflict has now introduced a risk premium that is keeping Treasury bonds elevated. Not great for mortgages.”

Affordability Remains a Major Challenge

Funderburg says affordability remains the primary challenge in today’s real estate market, and mortgage rates are only one piece of that puzzle.

“Home prices, now approximately 60% above prepandemic levels, pose the largest obstacle to a meaningful housing market rebound,” he says. “Additionally, the market continues to face a shortage of existing home inventory.”

Carbone says a big reason inventory has been sluggish stems from the lock-in effect.

“Property owners with low mortgage rates from the pandemic-era days are still holding on to them,” he explains. “The limited supply is what is keeping prices up.”

Funderburg agrees.

“Many homeowners with ultralow mortgage rates remain reluctant to sell, constrained by both price considerations and the prospect of significantly higher mortgage rates on a new purchase.”

Now it’s worth noting that mortgage rates did briefly fall below the 6% mark in late February. But that drop was very short-lived. And as Carbone says, “Most of my broker colleagues seem to generally coalesce around the idea that rates need to be in the 5% bracket to meaningfully unlock existing property supply.”

[READ: Today’s FHA Mortgage Rates]

The Fed’s Decision Could Impact Buyer Psychology

While the Fed’s March decision is unlikely to move mortgage rates or have a huge influence on the housing market by itself, Ben Mizes, president and co-founder at Clever Real Estate, says it may have a modest impact on buyers’ mindset.

“Most of the changes in mortgage rates have already been priced in,” he says. “However, a pause can matter psychologically. It signals stability and can reduce volatility in bond markets. That can provide a more predictable environment for buyers who have been waiting to borrow.”

Mizes also says that a Fed rate pause could actually help hold home prices steady. That’s good news for sellers. For buyers, not so much.

“A pause can help reduce buyer hesitancy created by climbing rates,” he says. “If buyers are convinced that rates have peaked, a slight uptick in demand is likely, which would decrease the likelihood of prices dropping aggressively.”

[SEE: Current Jumbo Mortgage Rates]

The Bottom Line

All told, paused rates on the part of the Fed signal confidence in economic stability. That alone, under typical circumstances, could be enough to push more buyers into the housing market. But given that real estate prices and mortgage rates remain elevated, many buyers may be hesitant to bid on a home in the near term, especially given uncertainty stemming from recently higher gas prices and the broad conflict overseas.

If you’re in the market for a new home right now, a “wait and see” approach may be your best bet. Mortgage rates could start to fall in time. But borrowing rates aren’t the core issue.

You can often refinance a mortgage when borrowing conditions improve. Paying a premium for a home is a harder commitment to undo.

Over time, falling mortgage rates could lead to more housing inventory, resulting in lower prices. And that could be a bigger win than locking in a mortgage rate in the 5% range.

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Mortgage Rates on the Decline: Should You Refinance in 2026?

The Fed Holds Interest Rates Steady: Will It Impact the Housing Market? originally appeared on usnews.com

Don’t Settle for Student Loans to Pay for Online Education

By WTOP Staff
Online college programs are becoming a more popular choice for prospective students, with one study finding that more than 6 million students enrolled in at least one online course in fall 2015. The popularity of these courses can be attributed in part to their flexibility with working adults' schedules, students' ability to progress more quickly through online programs and, oftentimes, cheaper tuition. [See 10 low-cost online bachelor's programs for out-of-state students.]Online degrees can be beneficial to many college students, but some studies have shown online learners complete their programs at lower rates than students at traditional brick-and-mortar campuses. Individuals with student loans but no degree comprise two-thirds of defaulted borrowers. Though these numbers are not encouraging, just like for traditional programs, there are ways to reduce how much you'll need to borrow for an online program to ensure you won't become one of these statistics. Don't just settle on borrowing student loans to cover the whole cost of your program and living expenses. Instead, start thinking about how to cut costs and cover your balance in different ways, such as the following. -- Grants and scholarships: Even though you are taking an online course, you can still apply and receive grants and scholarships. But your first step should be to complete the Free Application for Federal Student Aid, commonly referred to as the FAFSA, which will allow you to receive a Pell Grant if your expected family contribution is low enough. The EFC criteria and award amounts are adjusted annually, but the 2017-2018 academic year awards range from $606 to $5,920, which could significantly lower the amount you borrow annually. Your next step is to apply for scholarships. You can start by checking online scholarship search engines, such as the Salt Scholarship Search, College Board's BigFuture and Peterson's. But don't forget to take advantage of local organizations and your school's financial aid office. Both may offer scholarships that you can't find with a national scholarship search. [Review these 10 sites to kick off your scholarship search.]For instance, organizations like the Elks Club, Knights of Columbus or the Rotary Club typically offer scholarships annually to local students. Just because you're going to school online doesn't mean you're ineligible. Visit your local library for scholarship listings, and ask around town. You might be surprised how many local organizations offer scholarships. While these scholarships typically aren't large, every little bit counts. Each dollar you receive in a scholarship is a dollar you don't have to borrow and pay interest on. -- Work-study: Another option for online students may be work-study awards. Not all students enrolled in online programs are eligible, but students at some schools -- including, for example, SUNY Empire State College and Liberty University -- are. Work-study awards are not given upfront like scholarships and grants. In most cases, they are an offer to earn up to the awarded amount if you secure an eligible work-study job. While there is a misconception that all work-study jobs must be on campus, students can work for off-campus, nonprofit or public employers as long as the work is in the public's interest. You may be able to work for a for-profit employer if the job is relevant to your course of study. No matter who the outside employer is, it will need to have an established agreement with your college for you to receive work-study funds. Remember, to be eligible for federal financial aid, you must be enrolled and pursuing a degree or certificate. If you're not working toward a credential, Pell Grants and work-study won't be option, but you may still be able to take advantage of private scholarships -- just be sure to read the eligibility criteria carefully. [Explore what to know about financial aid in online programs.]-- Pay as you go: One of the great benefits to enrolling online is the flexible schedule, which can allow you to complete your college coursework around your responsibilities. But prospective students often overlook using their part- or full-time job earnings as an option for paying for college. Almost 80 percent of college students in 2015 worked at least part time while attending classes, according to the National Center for Education Statistics. By budgeting and thinking strategically about your college costs, you can likely reduce your dependence on student loans by paying a portion out of pocket. Many -- but not all -- online programs are less expensive than traditional programs and often have shorter payment periods. Six, eight or 10 weeks are common course durations. Because of the frequency of payments in an online setting, you may be well-placed to pay as you go and possibly avoid borrowing altogether. Attending college online and avoiding student loans may be challenging, but if you are willing to put in the effort, you can limit the amount you need to borrow. More from U.S. News Q&A: Understanding Student Loan Discharge Eligibility Student Loan Refinancing Isn't Right for All Borrowers
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