Prospective homebuyers waiting for mortgage rates to come down sharply are likely facing a lengthy wait.

As expected, the U.S. Federal Reserve held its benchmark interest rate at the current target range of 5.25% to 5.5% during its latest meeting on Wednesday. In a statement, the Fed’s Open Market Committee cited a “lack of further progress” on bringing inflation down to its 2% target.

Bond markets now price in a 78% chance that the central bank will hold rates steady at the current range at least through August, according to the CME Group’s FedWatch tool. That significantly dims hopes of imminent mortgage rate relief for prospective summer house hunters.

Last month, the average rate on a 30-year fixed mortgage jumped back above 7% for the first time this year. The average rate stood at 7.17% for the week ending April 25, according to Freddie Mac. That was its highest level since November, and more than double the average seen before the Fed began its rate hikes more than two years ago.

The Fed has kept its benchmark rate higher for longer than economists and analysts had expected, after inflation ran hotter for longer and the economy remained strong despite higher borrowing costs.

“For homebuyers and sellers, it means that housing affordability is going to remain a top consideration that will likely propel homebuying in affordable markets often found in the Midwest and South,” said Realtor.com® Chief Economist Danielle Hale after the Fed’s announcement. “If moving to a more affordable market isn’t in the cards, homebuyers can aim to save by snagging a lower mortgage rate.”

Hale suggested shopping around among lenders, exploring lower-rate products like Department of Veterans Affairs loans, or searching for a home with an assumable loan as ways to “make homebuying possible even before mortgage rates trend more meaningfully lower.”

When will mortgage rates come down?

Mortgage rates are not pegged directly to the Fed’s benchmark rate. However, they closely follow yields on 10-year Treasury notes, which track investor expectations about the economy, inflation, and future Fed rate moves.

Yields on the 10-year note dipped as much as 6 basis points on Wednesday afternoon. That suggests that there won’t be an immediate spike in mortgage rates after the Fed announcement, and in fact, homebuyers might see a small tick down in contract rates in the coming days.

The downward move in yields came after the Fed announced that it would slow the pace of reducing assets on its balance sheet by more than half, decelerating a process nicknamed “quantitative tightening.”

In remarks to reporters, Fed Chair Jerome Powell said the slowdown in balance sheet reduction was part of a long-planned move to ensure a smooth wind-down process, and was not necessarily intended as a move to ease monetary restrictions on the economy.

Powell also acknowledged that higher borrowing rates are “painful and inconvenient” but reiterated that the Fed is committed to bringing inflation back down to its target range. The core Personal Consumption Expenditures measure of inflation, which the Fed uses for its 2% target, stood at a 2.8% annual rate in March.

“The thing that hurts everybody, and particularly people in the lower income brackets, is inflation,” said Powell. “And so with those people in mind, in particular, what we’re doing is, we’re using our tools to bring down inflation. It will take some time, but we will succeed and we will bring inflation back down to 2%.”

Looking ahead, bond markets don’t view a rate cut as likely until the Fed’s Sept. 18 meeting, with a 54% probability of a rate cut during or before that meeting, according to FedWatch. By the next meeting, on Nov. 7, the probability of a cut rises to 66%.

The Fed’s final meeting of the year is on Dec. 18, and bond traders see an 82% chance of a rate cut by then. Chances of a rate increase this year are slim to none, as the Fed has signaled it is not considering further moves higher unless the inflation picture changes dramatically.

Likely, mortgage rates will begin marching lower before the Fed makes a rate cut official, as new inflation and economic data make the central bank’s path forward more clear to markets.

“Although hotter than expected inflation data in [the first quarter] has pushed out the anticipated first Fed rate cut, it is likely to come later this year or early next,” said Hale. “Additional rate increases may be discussed, but I don’t think they will be seriously debated as an option without further increases in inflation.”

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