How the Next Federal Reserve Meeting Could Impact Northwest Indiana's Housing Market

The Federal Reserve’s upcoming meeting on January 28-29, 2025, is generating plenty of buzz. While the Fed's decisions about interest rates influence the broader economy, they also have an indirect impact on the housing market. For homebuyers and sellers in Northwest Indiana, understanding how these decisions play out can help you make informed decisions about your next steps.

Whether rates go up, down, or stay steady, Northwest Indiana's housing market is positioned to remain resilient. But with the ongoing housing shortage in America, timing is everything. Let's dive into how the Fed's actions and current market conditions could shape your homeownership journey.

What's Happening with the Fed?

The Federal Reserve reduced interest rates several times last year, with the most recent cut in December bringing the rate to 4.3%. Fed rate cuts don’t generally impact mortgage rates specifically, but long term it can bring mortgage rates down (we explain a little later in this article). The Fed has indicated it will likely slow the pace of reductions in 2025.

At the January meeting, experts predict rates will stay steady, with the next cut potentially delayed until May. This cautious approach reflects the Fed's balancing act between controlling inflation and supporting economic growth.

How This Affects Northwest Indiana's Housing Market

Interest rates directly impact mortgage affordability, which influences housing market activity. When rates drop, borrowing costs decrease, encouraging more people to buy homes. When rates hold steady or rise, buyers might pause, waiting for better conditions.

But the housing market in Northwest Indiana has unique strengths. Our region boasts affordability, vibrant communities, and proximity to Chicago, which continue to attract homebuyers regardless of economic shifts. However, the ongoing housing shortage across the U.S. creates a unique opportunity for today's buyers and sellers.

Why Now Is a Good Time to Buy

Even with interest rates remaining steady, there's a compelling case for entering the housing market today:

• High Demand, Low Supply: America is still grappling with a housing shortage, meaning there are fewer homes available than buyers looking for them. As demand continues to grow, prices could rise, making it harder to buy later. Acting now could allow you to secure a home before competition heats up even more.
• Build Equity in a Growing Market: Home prices in Northwest Indiana remain relatively affordable

Do Fed Rate Cuts Lower Mortgage Rates?

1. Fed Rates vs. Mortgage Rates: Different Benchmarks

• The Federal Reserve controls the federal funds rate, which is the interest rate banks charge each other for overnight loans. This primarily affects short-term loans, like credit cards, auto loans, and home equity lines of credit.
• Mortgage rates, on the other hand, are influenced by the 10-year Treasury yield, investor expectations about inflation, and the overall economy. While the federal funds rate can influence the economy broadly, it doesn't directly control the long-term rates tied to mortgages.

2. Market Expectations and Inflation

Mortgage rates are often determined by what investors expect to happen in the future, especially regarding inflation and economic growth. Even if the Fed cuts rates, mortgage rates might not fall if:

• Inflation expectations rise, which can push long-term rates higher.
• Investors foresee strong economic growth, leading to higher yields on bonds and higher mortgage rates.

For example:

• If the Fed cuts rates to stimulate the economy, it might signal concerns about inflation or instability, which could make mortgage rates rise instead of fall.

3. Supply and Demand for Mortgage-Backed Securities (MBS)

Mortgage rates are also tied to the demand for mortgage-backed securities (MBS), which are bundles of home loans sold to investors. If investors demand higher returns on these securities, lenders may raise mortgage rates, even during Fed rate cuts.

4. Timing and Lag

Even when the Fed's actions eventually influence mortgage rates, it can take time for the effects to filter through. Markets often “price in” Fed decisions before they happen, meaning the impact might already be reflected in current mortgage rates by the time the Fed announces its cut.

Key Takeaway

While the Fed's rate cuts can create conditions that might lead to lower mortgage rates over time (like reduced inflation or slower economic growth), they are not directly tied. If you're considering buying a home or refinancing, focus on broader market trends and work with professionals like SouthShore Region Mortgage Group who can guide you through the timing.

Any questions reach out to us anytime!

219.237.8026

info@southshoreregion.com