The Federal Open Market Committee (FOMC) will meet again next week and is expected to pause a series of three straight benchmark rate cuts dating back to September. According to the CME Group’s FedWatch tool, interest rate traders are nearly unanimous that the central bank will hold rates at range of 4.25% to 4.5%.
Emanuel Santa-Donato, senior vice president and chief market analyst at Connecticut-based lender Tomo Mortgage, told HousingWire that he expects rates to remain unchanged this month as the Fed won’t want to “undo the slow and fragile progress on moving inflation down to 2%.”
“Chair (Jerome) Powell stated multiple times (in December) that it was the belief of the Committee that the labor market has cooled sufficiently to bring inflation down to the 2% target,” Santa-Donato said in written commentary. “Since that meeting, job creation came in stronger than expected and CPI came in lower than expected, a Goldilocks scenario but one where I would expect the FOMC to be careful about overstimulating the economy and labor market through further rate cuts.”
Melissa Cohn, regional vice president for William Raveis Mortgage, said that the December inflation report was positive news. Any major upward movement in consumer prices could force the Fed to start raising rates again, she indicated.
“Obviously, everyone [in the mortgage market] is very concerned about what’s going to happen now that Mr. Trump is inaugurated and back in office, because his policy proposals are very inflationary,” Cohn added. “But what will be interesting to see is whether he’ll be able to get all of his desired policies, and to what degree.”
On his first day back in the Oval Office on Monday, Trump issued a slew of executive orders, including directives for federal agencies to study tariffs. The president reportedly said that 25% tariffs on goods from Canada and Mexico would begin Feb. 1.
Afifa Saburi, a capital markets analyst for Veterans United Home Loans, said that Treasury yields are “holding steady” and that should help mortgage rates “avoid short-term volatility.”
“The bond market is relieved to see that the new administration is planning to carry out tariffs more gradually than initially anticipated, which should help prevent any drastic upticks to prices and keep inflation under control,” Saburi said.
The newest analysis from Fannie Mae’s Economic and Strategic Research (ESR) Group that was released this week calls for mortgage rates to average 6.5% by the end of 2025 and 6.3% by the end of 2026. These forecasts are a respective 20 and 40 basis points higher than last month’s. Consequently, the ESR Group trimmed its forecasts for home sales by 2.2% this year and by 4% next year.
“Due to the ongoing lock-in effect and affordability constraints, we currently expect another year of sluggish existing home sales,” Fannie Mae chief economist Mark Palim said in a statement. “A silver lining for affordability is that we also anticipate income growth will outpace both home price and rent growth this year — and in many markets, new homes are now priced competitively with existing homes and are far more available.”
Santa-Donato believes that housing market conditions are giving prospective homebuyers a “clear signal” about waiting for rates to drop.
“It’s time to get off the sidelines,” he said. “Prices aren’t going down, and rates aren’t either, so the smartest move now is to step into the market and shop aggressively for the best mortgage rate.”
“Tomo’s proprietary lock data shows that the difference between a good and bad rate can cost homebuyers $300 more per month, adding up to more than $28,000 over eight years. The longer you wait, the more expensive buying a home becomes.”
