Hello Kansas City real estate home buyers! This past week has thrown us a curveball in the housing market. On December 18, the Federal Reserve cut short-term interest rates, but in an unexpected twist, mortgage rates actually increased! 📈
In the week ending December 18, the average 30-year fixed mortgage rate rose by 0.12 percentage points, reaching 6.66%. This rise comes despite the Fed’s decision to lower the federal funds rate by 0.25 percentage points.
So, why are mortgage rates moving in the opposite direction? 🤔 It all boils down to the different time frames these rates operate on. Mortgage rates are influenced by long-term economic outlooks, while the federal funds rate reflects short-term overnight loans between banks.
💡 The Inflation Dilemma 💡
What’s driving this divergence? The mortgage market is signaling that persistent inflation may stick around as the economy continues to grow. In contrast, the Federal Reserve is optimistic, believing that inflation will ultimately drop to their target of 2%. In their recent statement, they noted, “Inflation has made progress but remains somewhat elevated.”
As we approach a new presidential administration in January, uncertainty looms over the economy. Chen Zhao, head of economic research at Redfin, points out that current rate movements are heavily influenced by fiscal policy. Potential tax cuts and tariffs could push prices higher, leading to an increase in mortgage rates as inflation rises.
💼 Looking Ahead 💼
The financial markets seem to be anticipating fiscal stimulus in the form of tax cuts, which could result in inflationary pressures. However, investors are cautioned to consider the implications of higher tariffs, which could create a scenario of rising prices along with stagnant economic growth—a situation reminiscent of “stagflation” from the 1970s.
James Mackintosh of the Wall Street Journal recently warned that “trouble might be imminent for stocks,” highlighting the cautious sentiment among market analysts. While investors remain optimistic, the Fed is focused on real economic data rather than speculation.
For now, inflation rates have been creeping higher, contradicting the Fed’s assertions that they would soon decline. Should the Fed’s predictions hold true and inflation decreases, we could see a corresponding drop in mortgage rates. However, for the time being, both inflation and mortgage rates are lingering at levels that may not be ideal for homebuyers.
As we navigate these changes in the Kansas City real estate market, staying informed is key! 🌟 Keep an eye on these trends as they develop, and don’t hesitate to reach out if you have questions about buying or selling your home. 🏠💬
