What The Fed’s Rate Hike Means For The Housing Market

Abstract

What The Fed's Rate Hike Means For The Housing Market Higher rates mean borrowers pay more interest, which can reduce their buying power. Federal Reserve officials made history on Wednesday by hiking rates by three-quarters of a percentage point for the second straight month, delivering the most aggressive tightening in more than a generation to curb surging inflation, but risking a sharp blow to the economy. "The long-term bond market, off of which mortgage rates are generally priced, has mostly priced-in all future actions by the Fed and may have already peaked with the 10-year Treasury shooting up to 3.5% in mid-June," said Yun. "It is possible that the 30-year fixed mortgage rate may settle down at 5.5% to 6% for the remainder of the year. Still, mortgage rates are significantly higher now compared to one year ago, which is why home sales have been falling." The effects of higher rates are particularly evident in the housing market, where sales have slowed. "If mortgage rates do stabilize near the current rates, home sales will be dependent on jobs and consumer confidence," he said. "The Fed raising rates has been a bit like yelling into a cave and listening to your voice echo," said Wood. "The first time the funds rate went up, back in March, the effect on mortgage rates was loud and clear. In May, it was fainter, and in June, following a brief spike, rates rebounded so quickly it was as if there'd been no sound at all. But with the current level of economic uncertainty both globally and in the U.S., we can't take interest rate stability for granted." The Fed seeks to achieve maximum employment and inflation at the rate of 2% percent over the longer run and anticipates that ongoing increases in the target range will be appropriate.