What Happened During The Fed’s Meeting Yesterday?

In a notable shift, the Federal Reserve has chosen to maintain its benchmark interest rate between 5% and 5.25%, signaling a halt to the series of increases implemented since January 2022. The decision comes amidst efforts to rein in high inflation, which had led to a doubling of mortgage rates over the past 18 months to approximately 7%.
However, experts suggest that the Fed’s pause is unlikely to have a significant impact on consumer behavior in the Bay Area real estate market.

The region has already experienced buyers being priced out due to elevated mortgage rates, and the reluctance of homeowners to sell and lose their lower rates has resulted in a scarcity of new listings.
High mortgage rates have particularly affected expensive markets like the Bay Area, making homeownership unattainable for many. The majority of homeowners across the country have mortgage rates below the current average, reinforcing the “mortgage lock-in effect” that discourages sellers and reduces listings.

With mortgage rates projected to remain above 6% for the foreseeable future, experts do not anticipate a change in behavior unless rates drop further. Buyers and sellers are cautious about jumping into the market during the pause in rate increases, as they fear potential future hikes.
A decrease in rates could prompt increased buyer activity and motivate homeowners to list their properties. However, until such changes occur, the duration of homeowners’ wait for lower rates will determine market dynamics.

Despite the high interest rates, demand for homes in the Bay Area has seen a modest increase in 2023, although it remains below previous years. The proportion of all-cash buyers has also grown, but this does not translate to a higher overall sales volume. These cash buyers, untroubled by interest rates, are capitalizing on price declines in the market.

Bottom Line

The Fed’s rate pause has pros and cons. It stimulates the economy, stabilizes stocks, and helps borrowers. But it raises inflation concerns, creates asset price inflation, limits policy flexibility, and affects savers. The decision balances short-term growth with long-term risks, depending on factors and the economic landscape.