Fed’s interest rate outlook drives mortgage rates up

Rates for the 30-year mortgage continued to climb last week as the market anticipates further Fed action toward lowering inflation, according to Freddie Mac.  (iStock)

Rates for the 30-year mortgage rose to almost double what they were a year ago in response to the Federal Reserve’s efforts to lower inflation, Freddie Mac said.

The average rate for a 30-year fixed-rate mortgage increased to 5.66% for the week ending Sept. 1, according to Freddie Mac's Primary Mortgage Market Survey. This is an increase from the week prior 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 increased to 4.98%, up from 4.85% the week before and up from 2.18% last week. The five-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) also increased to 4.51%, up from 4.36% the week prior and up from 2.43% last year.

"The market’s renewed perception of a more aggressive monetary policy stance has driven mortgage rates up to almost double what they were a year ago," Sam Khater, Freddie Mac’s chief economist, said. "The increase in mortgage rates is coming at a particularly vulnerable time for the housing market as sellers are recalibrating their pricing due to lower purchase demand, likely resulting in continued price growth deceleration."

If you are looking to purchase a home or refinance your current mortgage, comparing multiple lenders can help you get the best rate. Visit Credible to find your personalized interest rate without affecting your credit score.


Markets react to Federal Reserve policy

Mortgage rates have been on a steady increase recently as the market speculated if the Federal Reserve would continue with its aggressive policy to curb inflation.

Following Federal Reserve Chair Jerome Powell’s comments at the central bank’s annual symposium in Jackson Hole, Wyo., last month, it seems that it will continue to raise interest rates to achieve its goal of reducing inflation. Powell reiterated that "restoring price stability" remains the Fed’s top priority even if higher interest rates "bring some pain to households and businesses." 

In response to the latest mortgage rates, Realtor.com's Manager of economic research, George Ratiu, said financial markets have continued to move in response to the Fed’s efforts to bring inflation back down toward 2%. 

"This week’s remarks by Cleveland Fed President Mester — who is also a voting member of the FOMC — were a clear indication of the current policy direction," Ratiu said last week. "She stated that the Fed needs to drive the benchmark rate above 4% by early 2023 and keep it steady through next year. The current policy rate is in the 2.25%-2.5% range, pointing to expectations of aggressive rate increases over the next few months."

If you want to take out a mortgage or get a mortgage refinance, you could consider using an online marketplace like Credible to help you compare lenders and potentially save money on your monthly payments and over the life of the loan. 


Mortgage rates will stay in 5% to 6% range

More interest rate increases could mean that consumers shopping for a mortgage loan in the coming months could expect to borrow at rates that hover between the 5% to 6% range, according to Ratiu. At those rates, homebuyers would face monthly mortgage payments that average "$2,000 a month or about 60% more than last year," he said. 

"This will challenge many first-time buyers, especially as wages are rising at just 5% per year," Ratiu said. "The silver lining for those still looking for a home is that houses are staying on the market longer, pushing sellers to drop asking prices and leaving more room for negotiation."

Ratiu said that as the market shifts into the fall, the pace of home sales could drop even further, creating more opportunity for discounts and home prices that fit better within homebuyers’ budgets.

If you are interested in taking advantage of rates now before they move higher, you could 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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