Fed Rate Hike Sends Mortgage Rates Soaring

The Federal Reserve has raised its benchmark interest rate for the first time in over three years, citing inflation as the main reason. The rate is now between 3.75% and 4%, up from a previous range of 2.5% to 3%. This move will likely lead to higher mortgage rates, which are already at a high threshold.

Economic data suggests that more interest rate hikes may be on the way in the coming months, with another possible before the mid-term elections in November. The central bank's decision is closely watched by bond investors, who use it as a guide to price mortgage rates. With America's national debt topping $40 trillion for the first time, investors are demanding higher yields.

The yield on 10-year Treasury bonds breached 5% this week for the first time since 2023. This means that lenders will likely increase mortgage rates, which have already climbed to 6.95% for a 30-year fixed-rate mortgage. This is a significant increase from last year's rate of 6.26%. Borrowing costs on 15-year fixed-rate mortgages also rose this week, reaching an average rate of 6.26%, up from 5.41% a year ago.

The national housing market has been in a slump since 2022, when mortgage rates began to climb from pandemic-era lows. The current high interest rates have sharply squeezed affordability and sidelined prospective buyers, according to Lisa Sturtevant, chief economist at Bright MLS. President Donald Trump has criticized the Fed for not lowering interest rates during his second term.