Home News Mortgage rates to 6.7 percent as Fed fights inflation

Mortgage rates to 6.7 percent as Fed fights inflation

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Becky Enrico-Crum has spent a lot of time trying to keep up with the pandemic as aspiring homeowners flock to Idaho. Towards the end of this summer, however, the president of the Boise Area Real Estate Agent felt that the frenzy had finally abated.

Prices in the region fell by 4.4% from July to August, but will rise by 6.6% from 2021. Her clients don’t have to participate in fierce bidding wars or make all-cash offers.

“We are not crashing. We are leveling,” said Enrico Crumb. “We’re just trying to find out what the price is at that level. That’s what everyone is trying to figure out.”

Why is the Fed raising interest rates?

The long-awaited shift from a glowing housing market to a more normal one has been driven in part by the Federal Reserve’s move to slow the economy, and as mortgage rates rise to their highest levels in 15 years, national is expanded to down inflation. The average interest rate on his 30-year fixed mortgage, his most popular mortgage product, hit 6.7% this week, the highest since July 2007, according to data Freddie Mac released Thursday. Since Sept. 1, a year ago he was 3.01%.

The housing market has cooled since the US Federal Reserve (Fed) began raising interest rates this spring.And it’s obviously cooling faster as interest rates rise. U.S. home prices fell in July compared to June, the first monthly decline since January 2019, according to the S&P CoreLogic Case-Shiller National Home Price Index. According to the National Association of Realtors, existing home sales in August fell for the seventh straight month to their lowest level since the early pandemic lockdowns. Sales from July to August he fell 0.4%, down 19.9% ​​compared to 2021. There are even early signs that rental prices may ease.

Federal Reserve raises interest rates by 0.75 points to fight inflation

Diane Swonk, chief economist at KPMG, said: “It’s very important to examine how vulnerable sectors like housing, which boomed after the pandemic, are vulnerable.” It was also underpinned by shifts in , some of these shifts will not go away, but low interest rates will go away.”

last week, The Fed hiked rates again by 0.75%, with two more rate hikes expected by the end of the year. The Federal Reserve has not specifically determined mortgage rates, but That benchmark rate, known as the Federal Funds Rate, ripples through the economy and affects all types of lending.Since Spring, the Fed Has Raised It Mortgage rates are rising rapidly, with interest rates going from near zero to between 3% and 3.25%.

They may not stop here, especially since the Fed has a long way to go to continue its fight against inflation. An unexpected rise in August, Rent and food costs are a big burden.the stock market tumbling for weeks Policymakers have made it clear that they are far from seeing the kind of progress needed to curb interest rate campaigns, and central banks around the world have Hoist rate at the same time.

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Many economists predict a recession later this year or early 2023. Especially since there is a time lag between rate hikes and the economy may not be in full control for several months. The housing market reacts very closely to every move in interest rates. But many other parts of the economy are not.

This week, the central bank There won’t be enough time to gauge the impact of rate hikes, said Chicago Federal Reserve Governor Charles Evans.

“Monetary policy lags behind and we moved quickly,” Evans said. “We have 75 basis points uplift three times in a row and there is talk of another 4.25% up to 4.5% by the end of the year. ”

Calculate how much your mortgage costs will increase if interest rates rise

The Federal Reserve’s interest rate hikes are aimed at cooling demand, and the housing market is looking to push prices to record highs, weeding out buyers who were vying for a handful of homes just a few months ago. I mean Fed officials hope their policies can slow the economic slowdown It completely shrunk the housing market without spurring a crash. Demand for mortgages is declining as quickly as interest rates rise. Claims have fallen in six of the past seven weeks, according to the Mortgage Bankers Association. Refinancing is down 84% compared to a year ago.

“The reality I share with my clients is that people were buying homes 20 years ago when interest rates hit 7%. We will continue,” said Geetesh Kapoor, Fairway’s Producing Branch Manager. Independent Mortgage Corporation. “If buying a home is your goal, you can always refinance when interest rates go down.”

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But monetary policy cannot solve another major problem in the housing market: the housing shortage. Inventory shortages continue to plague the housing market. The housing shortage is exacerbated by homeowners reluctant to sell due to low mortgage rates. According to Black Knight, 90% of borrowers have mortgage rates below his 5%, and two-thirds have them below 4%.

“Many of the potential sellers are strapped to low interest rates, making it difficult to transition to higher mortgages and keeping inventories low,” said Nicole Bashaw, senior economist at Zillow. “This rebalancing puts more time to make important decisions than at any time in the last few years, less competition, more bargaining power, and more hands to some wealthy buyers who can afford to remain active in the sale market. , more power has been brought in. Years.

Estimates of the domestic housing shortage range from 1.5 million to 5 million. But it is clear that until people have more places to live, housing and rent prices will continue to rise.

Rising rates will make closing that supply gap even harder. Phil Krone, executive director of the Dallas Builders Association, said rising interest rates Persistent supply chain shortage For everything from windows to garage doors. But Krone believes the Fed will raise rates and curb inflation without causing other consequences, such as companies laying off staff, exacerbating worker shortages in the construction industry, or completely crushing the housing market. I wish you success in

Demand for new homes in northern Texas remains strong, especially with strong job growth in the region, Krone said. There is also a generational element. While many millennials effectively fear high interest rates, generations of clone parents are accustomed to much higher mortgage costs. In the future, if inflation falls and interest rates can find a compromise, the market will become more sustainable.

“For now, it’s a matter of finding your feet again from this super acceleration,” said Krone.

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