NatWest and HSBC slash mortgage rates as market stabilizes

In the United States, the Federal Reserve's policymakers plan to reduce their benchmark interest rate by a quarter-point at their upcoming meeting on December 18, 2024. This reduction follows a series of interest rate cuts aimed at addressing elevated inflation, which remains above the Fed's target of 2%. Earlier in the year, the Fed had kept rates at a peak level to control inflation, reducing them by a half-point in September and a quarter-point thereafter. Expectations have shifted significantly from earlier projections, which suggested more aggressive rate cuts in 2025, but now the Fed anticipates only two or three rate cuts next year. The inflation rate, which peaked at 9.1% in June 2022, has since moderated, but it remains stuck at around 2.8% year-over-year since March 2024. This persistent level of inflation complicates the Fed's decisions about further rate cuts. Economists have expressed skepticism about the need for immediate cuts, arguing that inflation would be the driving factor that prevents rapid rate reductions. Moreover, the Fed aims to reach what is deemed a 'neutral' interest rate to support economic growth without triggering excessive inflation. In recent weeks, other central banks, including the Bank of Canada and the European Central Bank, have already begun cutting rates, and more global institutions are set to follow. The anticipated cuts aim to reduce borrowing costs for banks, which would have a domino effect on the affordability of mortgages and loans for individuals and businesses. This shift highlights a broader trend of easing monetary policy across the globe, sparking discussions about the implications on financial markets and household debt. Real estate experts, such as Barbara Corcoran, emphasize that substantial mortgage rate drops could stimulate the housing market significantly. However, they also caution about the current lack of first-time homebuyers, noting that only 24% of transactions involve buyers entering the market for the first time. While existing-home sales have shown slight improvement recently, the broader outlook remains cautious as many homeowners are hesitant to sell due to the disparity between their locked-in lower rates and current higher market rates. Thus, the trajectory of mortgage rates and housing market conditions in 2025 depends heavily on economic health indicators and the Fed's ongoing management of interest rates.