The World Bank predicts that if inflation hits the Federal Reserve’s two-percent target, borrowing costs, including mortgage rates, will decrease. This news broke on Tuesday and could mean good news for the U.S. housing market, which has been struggling with high loan costs and home prices.
Up until now, the U.S. Central Bank has been aggressively increasing interest rates since March 2022, marking the fastest rate hike in two decades. Mortgage borrowing costs have soared to levels not seen in over 20 years as a result. This move was aimed at curbing inflation, which currently hovers above the Fed’s 2 percent target.
As we approach the end of 2026, experts anticipate a decline in interest rates coupled with inflation, potentially giving the housing industry a much-needed boost.
The latest report from the World Bank suggests that borrowing rates are set to significantly drop by the end of 2026 as inflation reverts back to its target level. Reports like this serve as crucial information sources in the financial world.
The U.S. has been grappling with high interest rates, which have put a strain on the world’s largest economy. Thanks to pandemic-related savings, American consumers have managed to navigate these challenges, contributing to an unexpected economic growth surge.
Recent revelations from the World Bank show that the U.S. economy is on track for faster growth in 2024 compared to earlier predictions made this year. The estimates now project a 2.5 percent expansion in 2018, up from the previous 1.6 percent estimate.
The Bank emphasized, “Data released earlier in the year exceeded expectations, notably in consumer spending.”
Looking ahead to 2025, the U.S. is expected to experience a slower growth rate of 1.8 percent as the impact of higher rates filters into the economy, leading to weakened consumer spending.
During 2025, the slowdown will be driven by the cumulative effect of previous monetary and fiscal tightening measures. The Bank of England foresees that rising real borrowing costs will curtail household spending on durable goods and residential investments.
The Bank also points out that as housing prices decrease, household wealth will follow suit. This drop in wealth will potentially stimulate consumer and business spending at times when the economy slows down
As we move forward, it’s expected that home prices will stabilize by the end of 2023, staying well below the rapid pace seen in recent years. With wealth growth tapering off, the Bank anticipates a moderation in household income in 2024. Furthermore, a weakening labor market and an expected decrease in U.S. job openings are on the horizon.