Throughout much of the spring, the housing market slowed to a pace not seen since before the pandemic began. Buyers have continued to pause their home searches due to overall economic uncertainties and continued increases in interest rates.
The Federal Reserve began raising rates last year in an attempt to put pressure on the overheated economy and tamp down on rising inflation levels. The Fed is seeking to bring inflation down to 2% to simmer the boiling economy.
Since then, the Fed has made 10 consecutive rate hikes. The most recent hike was a quarter-point increase at the beginning of May.
However, after the latest hike, Federal Reserve Chairman Jerome Powell also signaled that these increases may be coming to an end, creating a potential shift in market activity.
In response to this potential pause, mortgage rates saw a small decline to 6.5%. As a result, demand for mortgages surged.
During the first week of May, applications for mortgages increased by 5% over the previous week. Activity in the refinance space jumped 10% in the same time frame.
“Mortgage applications responded positively to a drop in rates last week, as the Fed signaled a potential pause at the current level for the federal funds rate in anticipation of inflation slowing and tightening financial conditions that will slow economic and job growth,” said Joel Kan, vice president and chief economist for the Mortgage Bankers Association.
Eager potential homebuyers are likely to take full advantage of a possible pause on interest rate hikes and a consequent drop in mortgage rates.