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Fed policymakers signal they still expect to start cutting rates later this year

MICHEL MARTIN, HOST:

If you are trying to buy a home, you already know it's rough out there. The average interest rate for a 30-year mortgage is around 6.75%. While that's not the highest it's ever been or even been lately, it's still high. The Federal Reserve met yesterday, and interest rates were on the agenda. This is what Fed Chair Jerome Powell had to say.

(SOUNDBITE OF ARCHIVED RECORDING)

JEROME POWELL: Inflation is still too high, ongoing progress in bringing it down is not assured and the path forward is uncertain. Today, the FOMC decided to leave our policy interest rate unchanged and to continue to reduce our securities holdings.

MARTIN: So interest rates didn't change, but we still wondered how this could affect the housing market, whether you're buying or renting. So we called Logan Mohtashami for this. He is a lead analyst with HousingWire. That's a media outlet that reports on real estate and mortgage news. Good morning.

LOGAN MOHTASHAMI: Good morning. It's great to be here.

MARTIN: It's good to have you. So it's the fifth consecutive meeting where the Fed has left rates unchanged. So that might not be surprising. Was there anything that you didn't expect from the meeting or that stood out to you?

MOHTASHAMI: Well, I think the entire industry was afraid that the Federal Reserve was going to sound very hawkish in this meeting and that mortgage rates would head toward 8%, kind of like what happened last year when they had a very hawkish tone. So the fact that Jerome Powell struck a kind of a more moderate stance on fighting inflation was actually a really big deal. Mortgage rates actually trended lower toward the end of the day. So there was actually a bit of relief that the Federal Reserve and its members didn't change their kind of overall stance of having three rate cuts at some point this year.

MARTIN: So at what point - what - so three interest rate cuts in 2024 - when might these cuts come, and what would this mean for homebuyers?

MOHTASHAMI: I - the cuts should start in the summer, and we'll get them throughout the year. But mortgage rates have kind of already made a big move lower from last year. Of course, we went from 8% down to 6.5%. But as long as the Federal Reserve starts to sound more dovish throughout the rest of the year, over the year, rates should trend lower, and I think that'll be a positive for the housing market. Of course, the housing market is at record low sales for now the third consecutive straight year. So the worst thing could have happened was Powell and the Federal Reserve sounded hawkish, maybe not cut three times, rates stay higher for longer. So this was actually a really big meeting in the sense that the Federal Reserve still wants to stay on track on cutting interest rates at least three times this year. And if the economy gets weaker, they'll probably end up doing a little bit more this year in cutting rates.

MARTIN: OK, so let's turn to renters. You know, rents are historically high, are they not?

MOHTASHAMI: Yes. Rents are historically high. But we have a record amount of apartments that are under construction, that are coming online. So the apartment rents are actually cooling off. In some parts of the U.S., we actually have landlords offering one, two or three months free just to sign in. That is a positive story in the U.S. Of course, single-family rents are holding up well. There's not that much supply in that marketplace. But the apartment constructions - a lot of those units will be coming online over the next year, and that'll be very good for the rental inflation story. We should see some disinflation on rents there.

MARTIN: OK, so does the Fed's move mean anything for renters?

MOHTASHAMI: I believe that what the Fed has done is they hiked rates so much that the future production of apartments are - have been basically shut off because construction loans are so high. So the faster the Fed cuts rates, the better it'll be for renters because permits to build apartments are actually down to recession lows right now. So unfortunately, all the apartments that - when they get built, those jobs are at risk. The faster they cut, more production will happen later on in a year or two. But we do have a lot of units about to come online, which would be good for renters, especially those in the apartment or looking to live in apartments.

MARTIN: OK, so as briefly as you can and if you think this is in your wheelhouse, do you have any advice for people who want to buy that first home?

MOHTASHAMI: Absolutely. If you are ever stressed about the total payment of a house, don't buy a house, right? Your home should be the easiest decision you make because you're - basically it's the cost of shelter to your own capacity to own the debt. So if you're in the - if you're still in the mindset of asking people if you should buy, you probably shouldn't buy. When you're ready to buy, it'll be such an easy decision.

MARTIN: OK, that is Logan Mohtashami, an analyst with HousingWire. Logan, thank you.

MOHTASHAMI: My pleasure. Transcript provided by NPR, Copyright NPR.

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