Biggest Fed rate increase since 1994
The National Association of Realtors Chief Economist Lawrence Yun had this to say on the Federal Reserve’s recent 75 basis point rate hike, “Today’s announcement by the Federal Reserve set a big increase in interest rates and means several more rounds of rate hikes are on the way in upcoming months. So far, the short-term fed funds rate that the Fed directly controls has risen by 175 basis points. But the 30-year fixed rate mortgage has risen even more – by nearly 300 basis points. On the same $300,000 mortgage, the monthly payment has risen from $1,265 in December to $1,800 today. That’s painful and, consequently, will shrink the buyer pool. Home sales have recently been trending down towards 2019 figures. Sales could fall even further with some inventory sitting on the market for more than a month like in the pre-pandemic days. Pricing a listed home properly will, therefore, be the key to attracting buyers. In the meantime, rental demand will strengthen along with rents. Only when consumer price inflation tops out and starts to fall will mortgage rates stabilize or even decline a bit. That is why providing additional oil supplies will be critical in containing consumer prices and interest rates.”
The Mortgage Bankers Association’s Chief Economist Mike Fratantoni also commented, “The Federal Reserve is racing to catch up to economic events, announcing today a 75-basis-point increase and signaling more increases to come. A federal funds target rate likely to reach almost 4 percent by the end of 2023 should be effective in slowing the economy and ultimately bringing down inflation.
Fratantoni continued, “The ongoing reduction in the size of the Fed’s balance sheet, including its holdings of MBS, is another factor putting upward pressure on mortgage rates.
“The housing market has slowed considerably over the past month as rate increases have taken hold. We expect that this slower pace will remain through the summer, but buyers could return later this year if the Fed’s plans are better understood by the market and lead to less rate volatility.”