Rate cuts in 2024? There’s no ‘there there’ quite yet

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Published Date 4/15/2024

That much-anticipated drop in mortgage rates a whole slew of potential homebuyers hoped for? Nope. Didn’t happen.

Inflation jumped in March, giving the U.S. Federal Reserve ammunition to hold off on those eagerly awaited interest rate cuts, says Realtor.com’s Clare Trapasso. “For the fourth month running, inflation ticked up—reaching 3.5% year-over-year in March, according to the most recent consumer price index summary— the biggest increase since August.

Higher inflation coupled with lower-than-expected unemployment could result in the Fed keeping its interest rates higher for longer or even reducing the number of cuts this year. But that does sound puzzling to the non-financially savvy among us. Does that mean high unemployment and low inflation mean people could now afford a home?

Mortgage rates are separate from the Fed’s rates but generally move in the same direction. “It means that mortgage rates are likely to bounce higher before they trend lower,” says Realtor.com’s Chief Economist Danielle Hale. “As far as how high they go, that’s going to depend on what happens with inflation.”

Everyone was looking to the Fed to cut interest rates three times this year—in June, September, and December. Now, Hale believes they’ll lower rates only in September and December.

“Those elevated rates have been tough for many homebuyers, especially first-time buyers, to contend with at a time when home prices are also high,” says Trapasso. The median home list price was $424,900 in March, according to the latest Realtor.com data.

“Today’s report is going to make it harder for the Fed to begin cutting interest rates, assuming it stands by its 2% inflation target,” Bright (mid-Atlantic area) MLS Chief Economist Lisa Sturtevant said in a statement. “Inflation is down from the high of 9.1% in June 2022, but it is not down far enough for the Federal Reserve to begin cutting interest rates.” This being said, JP Morgan Chase CEO Jamie Dimon warned that inflation may be “stickier” than the markets expect, in his annual letter to shareholders released Monday.

“There seems to be a large number of persistent inflationary pressures, which may likely continue,” Dimon wrote. “Therefore, we are prepared for a very broad range of interest rates, from 2% to 8% or even more, with equally wide-ranging economic outcomes.”

Transportation services inflation rose the most year-over-year in March followed by shelter inflation, which represents about a third of the goods and services that are measured in the consumer price index.

“Shelter inflation is based largely on rent trends but adjusted to more closely mirror the rents of both renters and the imputed rents of homeowners,” says Hale. “This is why shelter inflation continues to climb, even though Realtor.com data show that rents have declined for seven months in a row.”

There may be a glimmer of light at the end of the tunnel, however. Trapasso reports that State Street Global Advisors expects the Fed will cut interest rates by half a percentage point as early as June. The asset management firm anticipates the Fed will lower rates by a point and a half by the end of 2024.

For now? Experts anticipate mortgage rates are likely to remain elevated. “I don’t think we’re going to see a huge run-up in mortgage rates,” says Hale. “But today’s inflation data is going to be a setback for homebuyers and sellers hoping for lower rates sooner rather than later.”

Realtor, TBWS

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