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The housing market will remain subdued until the Federal Reserve<\/strong><\/a> starts cutting rates next year, according to economists and housing pros following the central bank\u2019s Wednesday announcement <\/a>to leave the benchmark rate unchanged in the target range of 5.25%-5.5%.<\/p>\n Until interest rates come down, affordability challenges will continue to put first-time buyers on the sidelines, housing industry observers said. Real estate experts reiterated caution against further rate increases.\u00a0<\/p>\n While Fed Chair Jerome Powell emphasized incoming data will determine whether the central bank will raise its federal funds rate at its next FOMC meeting in November, the “dot-plot” of rate projections <\/a>showed policymakers foresee one more hike by the year-end. The bulk of central bank officials expect to have interest rates finishing the year at around 5.6%.<\/p>\n In an elevated rate environment, the lack of inventory continues to be the biggest challenge for many potential buyers, the Mortgage Bankers Association said.\u00a0<\/p>\n \u201cWhile homebuilder sentiment is clearly impacted by the recent surge in mortgage rates<\/a>, permits for single-family homes provide a positive outlook for the pace of construction <\/a>in the year ahead. If mortgage rates trend down in 2024 as we anticipate, the combination of more homes for sale and somewhat lower rates should support stronger purchase volume,\u201d Mike Fratantoni, SVP and chief economist at the MBA<\/strong><\/a>.<\/p>\n The MBA expects mortgage rates should begin to reflect that the Fed\u2019s moves in 2024 will be cuts \u2013 not further increases. MBA’s mortgage finance forecast <\/a>projected the 30-year fixed mortgage rate to decline to 5.4% in 2024 and 5.1% in 2025.<\/p>\n Powell also noted in a press conference that because people locked in \u201cvery low rate mortgages, even if they want to move now, that would be hard because the new mortgage would be so expensive.\u201d<\/p>\n Rates are most likely to stay elevated until 2024, said Danielle Hale, chief economist at Realtor.com<\/strong>, <\/strong>thus putting a damper on the number of home sales transactions.<\/p>\n \u201cHigher mortgage rates have radically altered homebuyer purchasing power and have been a key factor in existing home sales dropping from a more than 6.5 million unit pace in early 2022\u00a0 <\/a>to the roughly 4 million unit pace <\/a>in recent months,\u201d Hale said.\u00a0<\/p>\n More importantly, higher mortgage rates continue to keep existing homeowners sidelined, with as many as one in seven buyers out of the market<\/a> because they don\u2019t want to borrow at today\u2019s much higher rates, Hale noted.\u00a0<\/p>\n In the short-term, mortgage rates are likely to bounce around a bit as the markets digest upcoming economic data, Melissa Cohn, regional vice president of William Raveis Mortgage<\/strong>, said. <\/p>\n Incoming data of job and CPI reports next month will provide more clarity on how strong the economy is. Reports on jobs and inflation will be released on October 6 and October 12, respectively. <\/p>\n \u201cIf the data reveals that inflation remains elevated and employment is still growing, then mortgage rates are likely to move up and we can look for what we hope to be the last rate hike of this cycle,\u201d Cohn said.<\/p>\n The rapid ascent is mostly behind us but it will be a while before the economy sees any sign of a gradual descent, Marty Green, principal at mortgage law firm Polunsky Beitel Green<\/strong>, added.<\/p>\n \u201cIn my view, this means the mortgage interest rate environment will continue to bounce sideways through the next several months,\u201d Green said.<\/p>\nShort-term mortgage rate movement<\/h2>\n