What do higher rates mean for buying homes?

Although the Fed does not set mortgage rates, it does influence them. Even with higher rates, it could be a good time to buy, one economist said.

NEW YORK - Mortgage rates, credit card rates, auto loan rates and variable-rate business loans are likely to remain at their highs, with implications for consumer spending, after the Federal Reserve announced Wednesday that it does not plan to cut interest rates until they have "confidence more" that price increases at the consumer level are slowing down to a target of 2%.

The central bank kept its key interest rate at a two-decade high of about 5.3%, where it has been since last August.

Here's what you need to know:

What does this mean for borrowers?

Credit card rates are at or near all-time highs, and mortgage rates have more than doubled in recent years.

According to LendingTree, the average credit card interest rate in America today is 24.66%, unchanged from last month, although that rate has increased in 24 of the last 26 months.

"It's not likely to go down anytime soon, even though the Fed has taken its foot off the gas," said LendingTree credit analyst Matt Schultz. "This is probably the unfortunate reality for the next few months."

In the fight against credit card debt, 0% balance transfer cards "are still your best weapon," according to Schultz, but "they're getting harder to come by and their fees are going up."

With delinquencies and debt totals growing for consumers as well, some banks are more hesitant about accepting balance transfers, he said, meaning consumers will need good credit to get approved.

What is expected of savers?

Yields on savings accounts and certificates of deposit (CDs) are hovering high, thanks to the Fed's increased interest rates, according to Ken Tomin, banking expert and founder of DepositAccounts.com. However, "several banks have lowered deposit rates in anticipation that the Fed will start lowering interest rates at some point this year."

Certificate of deposit rates were the first to drop, and some online banks also began lowering online savings account rates. Ally Bank lowered the interest rate to 4.25% from 4.35% and Discover to 4.25% from 4.30%.

Even so, most online banks have stabilized their online savings account rates in 2024, and some online banks are still offering 5.25% returns. The highest online yield is currently 5.55%, with the average one-year yield on online CDSs at 4.94% as of April 1, according to DepositAccounts.com.

Tomin notes that "bank deposit rates continue to be slow to move higher," and says that while their average rates have risen sharply over the past year, "they are still very low compared to online rates."

The average return on the savings account for all banks and credit companies is 0.52% as of April 24.

What about mortgages?

The Fed does not directly set mortgage rates, but it does influence them. The bond market, inflation and other factors all contribute to the high mortgage interest rates currently facing consumers.

The average interest rate on a 30-year fixed-rate mortgage recently rose above 7% for the first time since November. LendingTree senior economist Jacob Channel notes that mortgage rates can change even when the Fed holds its benchmark interest rate steady, and that consumers should consider many economic data points before deciding to take out a mortgage.

"Even with relatively high mortgage rates and high prices, now can still be a good time to buy a house," he said. "Timing the market is almost impossible... In the same way, there are a lot of people who won't be able to buy until the market is cheaper."

High shelter and rent costs have contributed to sharp inflation in recent months. A Bankrate study found that renting is cheaper than buying a typical home in all 50 of the largest US metro areas. As of February, the typical monthly mortgage payment on a median-priced home in the U.S. was $2,703, while the national typical monthly rent was $1,979. That's a gap of almost 37% between the costs of renting and buying the house.

"While it would be nice if the Fed could fix everything on its own, it probably can't, at least not without causing a lot of crying and gnashing of teeth," said Chanel.