The latest rate hike of 0.75% by the US Federal Reserve (Fed) on Wednesday is expected to increase pressure on the housing market while boosting mortgage rates already at a nearly 20-year high. .
The rate hike announced Wednesday is the latest effort by the Fed to keep inflation in check by raising the cost of doing business. Rising interest rates can also make new mortgages much more expensive, cooling the housing market and increasing the cost of rent.
While announcing another rate hike on Wednesday, Fed Chairman Jerome Powell said the economy is still far from the point where he expects rent prices to fall.
“There will come a point when rent inflation will start to fall, but that point is far from where we are today.” and I am well aware of that.
The Home Loan Bankers Association (MBA) responded to the Fed’s announcement by pointing out that the peak in mortgage rates is not yet in sight.
“Rising mortgage rates and a sharp rise in home prices over the past few years have significantly reduced affordability,” MBA economist Mike Fratantoni said in a statement.
Hopefully, Fratantoni said, “the volatility we’re seeing in mortgage rates should subside once inflation starts to slow.”
However, the Fed indicated at a recent meeting that it is likely to continue raising interest rates to a higher high than the 4.6% planned for September.
Powell said it would be appropriate “at some point” for the Fed to slow its pace of rate hikes, hinting that the final figure would be above 4.6%.
Powell added that the US Federal Reserve recognizes how important rate hikes are to the housing market.
“Housing has been hit hard by these rate hikes, returning to pre-global financial crisis levels. Not historically high, but much higher than ever,” Powell told reporters on Wednesday. “That’s where we really see the huge impact of our policies,” he said at a press conference.
White House Press Secretary Carine Jean-Pierre said higher interest rates would slow housing demand and lower housing inflation.
“The Fed’s actions will help keep inflation down. And as mortgage rates rise, demand in the housing market will continue to cool and inventories will rise, which should have the effect of lowering housing inflation,” she said Wednesday. said at a press conference.
Mortgage rates fell slightly ahead of the Fed’s latest announcement, according to data released Wednesday by the Mortgage Bankers Association. The MBA’s weekly survey showed 30-year fixed-rate mortgage rates fell to 7.06%, down from 7.16% the week before, and applications fell for the sixth straight month.
Low-income housing advocates say the White House should be more vocal about the need for lower rents.
“For now, the Biden administration has been dangerously silent on the biggest item in the American budget: rent,” said Kansas City Tenant Association director and low-income housing advocate. Tara Ragbeer said in a statement. The Hill.
The effective mortgage rate jumped to 7.08% from 4.16% in March when the Fed first started raising rates. They more than doubled from the pandemic low of 2.65%.
This has significantly reduced refinancing activity as potential sellers are reluctant to give up low interest rates.
“With most homeowners pegged at significantly lower interest rates, refinancing applications continue to be more than 80% below last year’s pace, with applicants refinancing at 28.6%, the fifth consecutive week below 30%. MBA vice president and deputy chief economist Joel Kang said in a statement.
High interest rates are also encouraging borrowers to pursue slightly riskier variable-rate mortgages at lower interest rates. Did.
Rising interest rates have already led to a dramatic decline in new home sales and record prices, further limiting Americans’ ability to secure affordable housing.
The S&P CoreLogic Case-Shiller Index, released last month, showed home prices fell at a record pace in September, falling 2.6%.
Very high interest rates have also led to a sharp decline in the number of homes under contract. Forward-looking market indicators fell 10.9% in September, his fourth straight month of decline.
Meanwhile, new single-family home sales fell 10.9% in the same month, to a seasonally adjusted annualized rate of 603,000 units, according to Census Bureau data.
But Lawrence Yun, chief economist at the National Association of Realtors, said in a statement that recent rate hikes are already in many forecasts, so they may not dramatically change rate increases.
“Even if the Federal Reserve raises the short-term federal funds rate further significantly, long-term rates appear to move only marginally. The mortgage market has already priced in the Fed’s latest move,” Yoon said. rice field.