Fed’s Latest Meeting: What It Means for Interest Rates and Your Home’s Affordabilit

The Federal Reserve met last week, and the outcome might have you wondering what it means for your hopes of buying or selling a home. In plain language: the Fed decided not to raise interest rates this time around. They left their benchmark rate (the federal funds rate) unchanged at about 4.25% to 4.50%. This decision keeps the Fed’s rate at the same level it’s been since the end of last year. But unless you’re a finance buff, you might be asking: How does that affect me, a regular person who cares about the housing market?*

 

Don’t worry – we’ve got you covered. In this article, we’ll break down what the Fed’s latest move (or non-move) means in simple terms. We’ll explain how interest rates set by the Fed filter down to mortgage rates, and ultimately to home affordability. Whether you’re a homeowner enjoying a fixed low rate, a homebuyer shopping in a challenging market, or a real estate investor sizing up your next move, here’s what you need to know about the Fed’s decision and the current housing landscape.

What Did the Fed Decide and Why Should You Care?

Last week’s Fed meeting ended with an announcement that interest rates would hold steady – no increase, no decrease. For context, the Federal Reserve (often just called “the Fed”) adjusts a very important interest rate called the federal funds rate. This is essentially the rate at which banks borrow money overnight. It might sound obscure, but it’s like the tide that raises or lowers all boats: when the Fed’s rate goes up, all kinds of loans (including home loans) tend to get more expensive; when it goes down, loans can get cheaper.

By keeping rates unchanged, the Fed is basically hitting the “pause” button. Over the last couple of years, the Fed had been raising rates aggressively to fight high inflation (think of the rapid rate hikes of 2022 and early 2023), and then even eased off a bit with a few rate cuts in late 2024. Now, with inflation showing signs of stabilizing, they’re in a wait-and-see mode. In the Fed’s own words, they opted to “maintain the target range” of their benchmark rate at 4.25%–4.50% while they assess how the economy is doing.

 

Why should you care? Because the Fed’s rate influences borrowing costs across the board. It’s not just something for Wall Street – it affects Main Street too. When the Fed raises or lowers its rate, it indirectly impacts mortgage rates, credit card rates, car loans, and basically any money you might borrow from a bank. If you’re planning to buy a house (or even if you already own one), the interest rate on your mortgage is a huge factor in your monthly budget. So, the Fed’s choice to hold rates steady is a signal that, at least for now, borrowing costs won’t be climbing higher via Fed action. However, “steady” doesn’t mean “low” – rates are already high compared to a few years ago, and that’s where the crux of the housing affordability issue lies.

From the Fed to Your Mortgage: How the Rate Pause Filters Down

It’s important to note that the Fed doesn’t directly set mortgage rates. You won’t hear Fed Chair Jerome Powell announcing the 30-year fixed mortgage rate. Instead, the Fed sets short-term rates which influence the broader economy, and in turn, mortgage lenders adjust their rates based on things like investor demand for bonds, inflation expectations, and yes, the general direction of Fed policy. In short, the Fed’s actions strongly affect mortgage rates even if they don’t dictate them one-for-one.

Think of it this way: the Fed’s rate is like the thermostat for the economy’s “heat.” Turn it up (rate hikes), and everything from business loans to mortgages can get pricier, which tends to cool things down (less borrowing, slower spending). Turn it down (rate cuts), and loans get cheaper, possibly heating things up (more borrowing, more spending). By keeping the thermostat steady for now, the Fed is trying to keep the economy on an even keel – not cooler, not hotter.

For mortgages, this pause could be a mixed bag:

• Stability: The fact that the Fed is not raising rates further is a relief for borrowers. It means we’re not likely to see an abrupt spike in mortgage rates due to Fed policy in the immediate term.
• Already Elevated Rates: However, mortgage rates remain much higher than they were a couple of years ago. The Fed’s prior rate hikes (from 2022 into early 2023) contributed to a sharp rise in mortgage rates, which jumped from the record lows around 3% in 2021 to well above 6% and even 7% at times in 2023.
• Market Expectations: Interestingly, mortgage lenders often try to guess where the Fed is headed. Sometimes, if they expect the Fed to raise rates, mortgage rates go up in advance. Conversely, if markets believe the Fed will cut rates in the near future, mortgage rates might inch down ahead of time. We saw a bit of this recently – as rumors of the Fed pausing or cutting started, mortgage rates dipped from their peak levels.

As of now (late March 2025), mortgage rates are hovering in the mid-6% range on average for a 30-year fixed loan. In fact, after the Fed’s meeting last week, rates trended slightly downward, since investors saw some hopeful signs that the Fed might lower rates later this year. But “mid-6%” is still a world apart from the ~3% loans homebuyers enjoyed in 2021.

 

To put this into perspective, let’s illustrate how different life is for homebuyers now versus a few years ago:

That’s about $630 extra every month for the same house just because of the higher interest rate. Over a year, that’s over $7,500 more in payments. Ouch! It’s no surprise that these higher rates have slammed the brakes on housing affordability for many folks.

Home Affordability: Why So Many Are Feeling the Squeeze

Home prices themselves skyrocketed in the past few years (blame a combo of low interest rates during the pandemic, a home-buying frenzy, and limited supply of houses). Now add today’s higher mortgage rates to those still-high home prices, and you get a perfect storm for affordability issues. In fact, housing affordability in the U.S. is near its worst level in decades. One industry report described affordability as being at a 30-year low point in 2024– meaning it hasn’t been this hard to afford a house since the early 1990s or late ’80s.

 

What does “low affordability” really mean in human terms? Essentially, fewer people can afford to buy a home at current prices and rates. For example, about 75% of U.S. households cannot afford to purchase a median-priced new home in 2025. That statistic is startling: three out of four families are priced out of a typical newly-built house (which currently runs around $460,000) given where mortgage rates are. Even in the existing home market (which tends to be a bit cheaper than new construction), the story isn’t much better. Median home prices are still high, and at 6-7% interest, the income needed to comfortably afford those homes is more than what many families earn.

 

If you’re a prospective homebuyer, you might be feeling this squeeze directly:

• You calculate what you can afford per month, and a higher chunk of it goes to interest than it would have a couple years ago.
• Houses that were in your budget range before might have crept out of reach because now the monthly payment would be too high.
• Perhaps you’ve lowered your target price range, are shopping for a smaller home, or considering different neighborhoods where homes cost less.

Meanwhile, home sellers are feeling a different kind of squeeze:

• There are fewer buyers who can qualify or stomach these higher payments, which means less demand for their homes. The days of frenzied bidding wars are mostly gone. Sellers now may only get a couple of offers (or none at all) rather than a dozen.
• Homes are sitting on the market longer on average, and price growth has slowed. In some markets, sellers have had to reduce asking prices or offer incentives to attract buyers. For instance, it’s becoming more common for sellers to offer to pay for a year’s worth of HOA fees, throw in some furniture, or contribute to the buyer’s closing costs or mortgage rate buydown (where the seller pays points to lower the buyer’s interest rate for the first few years). These perks were almost unheard of during the red-hot market of 2021, but now they’re back as bargaining chips.

Current homeowners face a unique situation too. If you already own a home and locked in a low interest rate in years past, congratulations – you’ve got a mini golden ticket. Your monthly payment is based on yesterday’s low rates, so you’re probably in a decent spot making those payments. However, you might be feeling “locked-in” to that house and mortgage. Why? Because if you were to sell and buy a new home, you’d have to give up your old 3% loan and take on a new loan at today’s ~6.5%. That means a much bigger monthly payment for the same loan amount – not an appealing trade! This phenomenon is called the lock-in effect, and it’s a big reason we have a limited number of homes on the market. A huge share of homeowners refinanced or bought when rates were super low; roughly 58% of existing mortgages have interest rates below 4% (and only a small fraction have rates above 6%). Those owners are reluctant to sell and lose their cheap financing. It’s as if many houses are “trapped” under their owners, who say, “We’d love a new home, but not at the cost of a new mortgage at double the rate.”

The lock-in effect contributes to a tight inventory (fewer homes for sale), which paradoxically helps keep home prices from falling drastically. Even though buyer demand has cooled due to affordability, the shortage of listings means that when a decent, well-priced house does hit the market, it can still sell at a high price because there just aren’t many alternatives. In other words, home prices haven’t crashed – they’ve just stabilized or risen more slowly – because supply is as constrained as demand.

The Fed’s Pause: Relief or More Pain for Homebuyers?

Given this landscape of high rates and strained affordability, the Fed’s decision to hold rates steady can be seen as a small relief in one sense: at least things aren’t getting worse for now. Earlier, when the Fed was hiking rates frequently, mortgage rates shot up and up, making housing steadily less affordable each month. Now we’re in a period where rates are high but somewhat stable, so the situation isn’t rapidly deteriorating; it’s just persistently challenging.

For a homebuyer, a stable rate environment might help you plan a bit better. If mortgage rates aren’t seesawing as wildly week to week, you can house-hunt with a bit more certainty about what a given home will cost you monthly. In the week following the Fed meeting, there’s even been a slight dip in mortgage rates, as mentioned, due to optimism that this might be the peak and better days (i.e., lower rates) are ahead. Some economists think rates will hang around this mid-6% level in the near term. The consensus seems to be that rates will stay near current levels for much of 2025, unless some big economic shift happens.However, stable high rates are still high. Higher rates = higher monthly payments for buyers, which means many are still priced out or have to stretch budgets. Affordability is still a major hurdle, Fed pause or not. As one analysis bluntly put it, higher rates are challenging for homebuyers because of steeper monthly payments, and even sellers face lower offers due to these affordability limits. In plain English: expensive mortgages make life hard for buyers (can’t afford the house they want) and not-so-great for sellers either (fewer people can afford your house, so you might not get the price you hoped for).

 

So, while the Fed’s halt on hikes is welcome (nobody wanted even higher mortgage rates!), it’s not a magic wand that makes houses affordable again overnight. For that to happen, we’d likely need mortgage rates to drop significantly or incomes to jump a lot (or home prices to fall significantly, which current homeowners probably don’t want to see either).

What About Real Estate Investors?

If you’re a real estate investor – say someone looking to buy rental properties or flip houses – you are also watching interest rates closely. High rates mean higher financing costs for investment properties, too. Investors often use mortgages to leverage their purchases, and those loans can carry even slightly higher rates than primary home mortgages. So, just like homebuyers, investors have seen their potential profits shrink as borrowing costs went up.

For instance, an investor who could borrow at 3-4% a couple years ago could justify paying a higher price for a property because the mortgage payments were low and cash flow (or flip profit margin) looked good. Now, at 6-7% interest, the same property might barely break even on a monthly cash flow basis if it’s a rental, or yield a much thinner profit if it’s a flip. Many investors have responded by:

• Stepping back: Some are putting purchases on hold, waiting to see if rates come down or if better deals emerge.
• Paying cash or bigger down payments: Avoiding the high interest by using more cash. Of course, not every investor can do that, but those who can are in a stronger position to snag properties without worrying about interest rates.
• Negotiating harder: Investors often have a reputation for driving a hard bargain, and in this market they have to – the numbers need to work. This could mean offering lower prices to account for higher carrying costs.
• Focusing on high-yield markets: Some are looking at areas where home prices relative to rents are more reasonable, so even at higher interest rates, the rent can cover the mortgage. In other words, markets or property types that still “cash flow” even with 6-7% mortgages.

On the flip side, if you’re a landlord with an existing rental property, you might find a silver lining: rental demand is strong. Because many would-be homebuyers can’t afford to buy yet, they remain in the rental market. This keeps demand (and rents) up, which can help investors who already own properties. Of course, high home prices and rates can also make it harder for landlords to expand their portfolio with new purchases.

Overall, real estate investors are adapting to a “new normal” of higher rates. Deals haven’t disappeared, but they require more careful analysis now. The era of dirt-cheap money is over (for now), so investors are returning to fundamentals – thinking about long-term appreciation, rental income, and maybe even creative financing or partnerships to make deals work until (or if) rates go down in the future.

Looking Ahead: Will Interest Rates (and Housing Affordability) Improve?

This is the million-dollar question (quite literally, for some homebuyers!). Now that the Fed has pressed pause, what’s next? A lot depends on the broader economy, especially inflation. The Fed has said they’re not considering cutting rates until they’re confident inflation is heading back to their 2% target for the long haul. Some good news: inflation has cooled from the red-hot levels of 2022, but it’s still above that ideal 2% range. So the Fed is being cautious. They’re basically saying, “We’ll hold steady for now, but we’re ready to raise again if inflation flares up – or cut if the economy really weakens.”

However, the hints we got from last week’s meeting do offer some optimism for 2025. The Fed released projections that show many of their officials expect they might lower the federal funds rate later this year – possibly two small quarter-point cuts by December. If that happens, it could gently nudge mortgage rates down as well. In fact, just the possibility of future Fed cuts was enough to help ease mortgage rates slightly in recent days.

Economists and housing experts have various predictions, but a common theme is cautious optimism: mortgage rates may gradually tick down, but don’t expect a return to 3% anytime soon. For example, Fannie Mae’s economists predict rates will stay above 6% for most of 2025, maybe dipping to around 6% by year-end. In other words, we might see some relief, but it could be a slow drip rather than a waterfall. One vice president at a major lender summed it up saying that most experts think rates will stay near current levels in the near-term, and potentially for most of this year. So, plan accordingly.

 

If you’re a homebuyer waiting on the sidelines for rates to drop: a small decline (say from 6.5% to 5.5%) could improve affordability a bit, but it might not radically change the market unless home prices also adjust. And remember, if rates do fall noticeably, that could entice more buyers back into the market, possibly leading to increased competition for homes and even pushing prices up again. It’s an ironic seesaw – high rates keep buyers away (which pressures prices down), but lower rates could pull buyers back (which pressures prices up).

For current homeowners, slightly lower rates might open a window to refinance expensive debt (for example, if you have a high-rate home equity loan or you bought a home when rates were at peak 7-8%, you might get a chance to refinance to a 6% or lower loan). But if you already have a super low rate, you’re likely to stay put until market conditions change more dramatically.

For investors, any rate relief helps make more deals pencil out. A drop of even a percentage point in mortgage rates can significantly boost cash flow or the potential return on a project. Some savvy investors are starting to sniff around now, trying to find motivated sellers and negotiating deals, with the plan to refinance those investments should rates come down in the next year or two. Essentially, they see this slower market as an opportunity to buy with less competition, then refinance for better terms later (a strategy often dubbed “Marry the house, date the rate” – buy the property you like, and if the rate is high, plan to change that part when you can).

Making Sense of It All – And What You Can Do

All these dynamics might feel overwhelming, but here are the main takeaways:

• The Fed held rates steady in its latest meeting, which means no new pain from rising rates right now. But rates are already high, the highest in about 15+ years, so the pressure on the housing market remains.
• Home affordability is stretched thin. Many Americans are finding that the combination of high home prices and high mortgage rates has pushed homeownership out of reach. If you’re feeling that, you’re not alone – data shows affordability is at a generational low
• Sellers and homeowners are in a bind too. Many homeowners won’t sell because they don’t want to lose their low interest rate (the lock-in effect), which means fewer homes on the market. Those who do sell face a smaller pool of buyers. It’s a stalemate of sorts: buyers can’t buy and owners won’t sell, leading to low sales activity.
• Mortgage rates could ease later in 2025, especially if the Fed starts cutting rates as some expect, but the changes might be gradual. We’re likely in a “new normal” of moderately high rates, at least compared to the ultra-low rates of the late 2010s and 2020-2021. Plan your housing decisions with the assumption that ~6% rates could be here for a bit, and if they drop, that’s a bonus.
• For buyers: Focus on what you can control. You can’t control the Fed or the housing market, but you can control your preparation. Strengthen your credit score (to get the best rate possible), save up for a larger down payment (to reduce the amount you need to borrow), and keep an eye on home prices in areas you’re interested in. You might also consider alternative strategies like first-time buyer programs, or looking at slightly more affordable neighboring towns, etc. And if you really want to buy now, you could look into creative financing (like a temporary 2-1 buydown where your rate is lower for the first two years, or an adjustable-rate mortgage if you believe you’ll refinance before the rate adjusts – but tread carefully and make sure you understand the risks).
• For homeowners: If you’re comfortable, staying put isn’t a bad choice in this environment. You might use this time to improve or renovate your home instead of moving. If you’re struggling with an adjustable loan that has gotten more expensive due to rate hikes, talk to a housing counselor or lender – there may be refinance options or loan modifications that can help. Also, keep an eye on interest rate trends; if a refinance to a fixed-rate becomes viable, you want to be ready to jump on it.
• For investors: Look for opportunities that make sense even in today’s rates. Real estate isn’t just about the next six months – it’s a long game. Properties that cash flow now or have solid fundamentals will likely pay off even better if and when financing costs come down. It’s a tougher environment than a few years ago, but not impossible. Just be extra diligent with your math and maybe negotiate a bit harder to get properties at a discount.

Conclusion

The Fed’s latest meeting delivered a dose of stability in an otherwise challenging time for the housing market. By keeping interest rates unchanged, the Federal Reserve isn’t adding fuel to the fire, but the fire (of high borrowing costs) is still burning hot. We’re all feeling the effects: buyers, sellers, owners, and investors are adjusting to a reality where interest rates are much higher than we got used to, and that means recalculating what’s affordable and what isn’t.

 

Remember, the housing market, like the economy, moves in cycles. We’ve gone from a period of ultra-low rates and supercharged price growth to a period of higher rates and cooling sales. The pendulum will swing again – the big questions are just when and how much. In the meantime, staying informed is your best strategy. Understanding why things are the way they are (for example, knowing that the Fed’s fight against inflation has trade-offs, like pricier mortgages) can help you make better decisions about renting vs. buying, selling vs. holding, or investing.

Ultimately, knowledge is power. By reading articles like this and keeping up with the market, you’re empowering yourself to navigate the twists and turns of real estate in 2025. The Fed’s moves will continue to shape the financial landscape, and we’ll be here to translate what that means for folks on the ground, like you and me.

If you found this breakdown helpful, consider subscribing to Simplicity Scoop. We deliver accessible insights on the housing market and economy, so you can stay ahead of the curve. Buying or selling a home is one of the biggest decisions in life – and the more you know, the more confident you can be in that decision. Stay tuned for more updates, and happy house hunting (or home staying)!