The Federal Reserve on Wednesday emphasized that inflation has remained stubbornly high in recent months and said it doesn’t plan to cut interest rates until it has “greater confidence” that price increases are slowing sustainably to its 2% target.
Several hotter-than-expected reports on prices and economic growth have recently undercut the Fed’s belief that inflation was steadily easing.
“In recent months,” Chair Jerome Powell said at a news conference, “inflation has shown a lack of further progress toward our 2% objective. It is likely that gaining greater confidence,” he added, “will take longer than previously expected.”
Powell did strike a note of optimism about inflation, stating, “My expectation is that over the course of this year, we will see inflation move back down.”
From what I am hearing, the expectation in the market is that there may be ONE interest rate cut this year, possibly in late Q4, and that rate cut may be only ¼% point, meaning not that big of a difference.
Ongoing Affordability Challenges Could Throw Cold Water on Spring Home-Buying Hopes
Although mortgage interest rates are down from the high of 7.79% late last year, the average 30-year fixed mortgage rate in 2024 remains in the low 7% range amid rising home values. As a result, home buyers continue to face affordability challenges.
Data uncovered that expenses are eating up more than 32% of the average national wage. Common lending guidelines require monthly mortgage payments, property taxes and homeowners insurance to comprise 28% or less of your gross income.
At the same time, home prices and homeownership expenses continue to outpace wage growth.
Consequently, the latest expense-to-wage ratio is hovering at one of the highest points over the past decade, according to the Attom report, despite some slight affordability improvements over the last two quarters.
“Affording a home remains a financial stretch, or a pipe dream, for so many households,” said Rob Barber, CEO at Attom.
Locally, I am experiencing homebuyers who are very selective in making offers on homes that are currently for sale. Although there are more homes for sale here locally, buyers are looking for homes that are well-maintained, somewhat or very updated, and priced right for this market.
The cost of homeowners’ insurance has begun to really sink in, and impact the affordability of many people’s budget (whether you’re looking to purchase a new home or just staying in your home, the costs are becoming prohibitive).
Another factor is the cost of utilities, gas and food – and when factored together, can make homebuyers hesitate across the board.
It will be an interesting summer selling season this year.
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