Fed interest rate outlook pushes mortgage rates higher

30-year mortgage rates continued to climb last week as the market priced in further Fed action to reduce inflation, according to Freddie Mac. (iStock)

Rates on 30-year mortgages nearly doubled from a year ago in response to the Federal Reserve’s efforts to reduce inflation, Freddie Mac said.

The average rate on a 30-year fixed-rate mortgage rose to 5.66% for the week ending September 1, according to Freddie Mac’s Primary Mortgage Market Survey. This is an increase from the previous week when it averaged 5.55%, and is significantly higher than last year when it was 2.87%.

Other loan terms also increased last week. The 15-year mortgage rose to 4.98% from 4.85% the previous week and from 2.18% last week. The five-year Treasury-indexed hybrid variable-rate mortgage (ARM) also rose to 4.51%, from 4.36% the previous week and from 2.43% last year.

“Renewed market perception of more aggressive monetary policy has pushed mortgage rates to almost double what they were a year ago,” said Sam Khater, chief economist at Freddie Mac. “The increase in mortgage rates comes at a particularly vulnerable time for the housing market, as sellers recalibrate prices due to weaker buying demand, which will likely lead to a continued deceleration in price growth. “

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Markets react to Federal Reserve policy

Mortgage rates have risen steadily lately as the market wonders whether the Federal Reserve will continue its aggressive inflation-fighting policy.

Next Federal Reserve Based on comments from Chairman Jerome Powell at the central bank’s annual symposium in Jackson Hole, Wyoming, last month, it appears it will continue to raise interest rates to meet its inflation-reduction target. Powell reiterated that “restoring price stability” remains the Fed’s top priority, even as rising interest rates “suffer households and businesses.”

In response to the latest mortgage rates, real estate agent.comReuters Director of Economic Research George Ratiu said financial markets continued to move in response to the Fed’s efforts to bring inflation back toward 2%.

“This week’s remarks from Cleveland Fed Chairman Mester — who is also a voting member of the FOMC — clearly indicated the current policy direction,” Ratiu said last week. “She said the Fed should raise the benchmark rate above 4% by the start of 2023 and keep it stable until next year. The current policy rate is in the range of 2, 25% to 2.5%, indicating expectations for aggressive rate hikes over the next few months.”

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Mortgage rates will remain in the 5% to 6% range

Further interest rate hikes could mean consumers looking for a mortgage in the coming months could expect to borrow at rates between 5% and 6%, according to Ratiu. At those rates, homebuyers would face monthly mortgage payments that average “$2,000 a month, about 60% more than last year,” he said.

“This will challenge many first-time buyers, especially as wages are only increasing at 5% per year,” Ratiu said. “The silver lining for those still looking for a home is that homes stay on the market longer, prompting sellers to lower asking prices and leaving more room for negotiation.”

Ratiu said that as the market enters the fall, the pace of home sales could drop further, creating more opportunities for discounts and home prices that are better suited to buyers’ budgets.

If you want to take advantage of rates now before they go up, you can consider refinancing your mortgage to lower your monthly payments. Visit Credible to find your personalized interest rate without affecting your credit score.

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