Home News Fed’s biggest rate hike since 1994 means millions more homebuyers may be priced out of the housing market: ‘Desperate times call for desperate measures’

Fed’s biggest rate hike since 1994 means millions more homebuyers may be priced out of the housing market: ‘Desperate times call for desperate measures’

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Sympathize with those first-time homebuyers.

On Wednesday, the Federal Reserve raised the benchmark interest rate by 75 basis points to the range of 1.5% to 1.75%. This is the largest rise since 1994 as it tried to curb the rise in inflation, which reached its highest level in 40 years.

Eric Finnigan, Director of John Burns Real Estate Consulting, I wrote on Twitter
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Mortgage rates have risen from 3% earlier this year to 6%, effectively excluding 18 million households from being eligible for a $ 400,000 mortgage.

With a $ 400,000 loan, a 30-year fixed rate mortgage with a 3% interest rate will cost homebuyers about $ 1,686 a month, excluding taxes and other fees. That’s a total of $ 607,110 (interest is $ 207,110).

Compare with the current interest rate. If the cost of the same mortgage is 6%, the monthly repayment amount is about $ 2,398 (totaling $ 863,353, interest is $ 463,353), and the monthly repayment amount increases by 42% at a low interest rate.

Mark Hamrick, senior economic analyst at Bankrate.com, said in response to the Fed’s 75 basis point hike, the old maxim “Desperate times need desperate steps” to this latest rate hike. It seems to have had an impact. “

“The cost of borrowing is higher, especially for those who have floating rate products,” he said. On the contrary, those who fixed the interest rate for 30 years last year at more than half of the current interest rate will be sighing relief.

The recent rise in mortgage rates has been incorporated into the expected rise of 75 basis points, but they say interest rates are still on the rise.

“The 30-year fixed-rate mortgage surged to over 6% last week, the highest level since November 2008, when the economy was out of the financial crisis,” he said. “The May inflation report provided the final move.”

“”“The Fed faced another difficult choice.”


— Ben McLaughlin, President of the online savings platform SaveBetter.com

The Federal Reserve is facing a difficult balancing act. According to the Consumer Price Index, it is to curb rapid inflation without pushing GDP growth into the negative territory.

Holden added that there would be no reason for interest rates to fall at these levels of inflation. “Mortgage rates tend to fluctuate in anticipation of Fed rate fluctuations,” he added, adding that no further dramatic surge is expected in the coming weeks.

About half of buyers choose to suspend their plans to buy a home and wait 6-12 months before resuming the process. Recent research 900 realtors by real estate technology startup HomeLight.

That feeling is manifesting elsewhere. The market complex index, an indicator of mortgage application volume, has fallen to its lowest level in 22 years. Mortgage Bankers Association (MBA) I said earlier this month.

Redfin
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CEO Glenn Kelman said Blog post On Tuesday, he asked 8% of the company’s staff to leave the company. “May demand is 17% lower than expected, so agents and support staff don’t have enough work.”

“Mortgage rates have risen faster than at any point in the past, so companies have had to reduce their staff,” he said. Home sales can last for years instead of months, but Redfin will continue to thrive. “

Analysts weren’t surprised by the Fed’s move. Ben McLaughlin, president of the online savings platform SaveBetter.com, said the federal funds rate has risen three times in a row since March 2022, meeting expectations.

“The Fed has faced another difficult choice,” McLaughlin said. “The market has been rattling lately, so the Fed is trying to avoid a major shock that could put the U.S. economy into recession. You have to walk a narrow road, “he added.

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