Federal Reserve Hike Pushes Mortgage Rates to 16-Month High

The Federal Reserve has raised interest rates for the first time since July 2023, aiming to control inflation. This move may have far-reaching implications for mortgage rates and the housing market.

Mortgage rates have been steadily increasing over the past few months, with the average 30-year fixed rate climbing to 6.95% this week, up from 6.76% last week. This marks a significant jump in just one week and is the largest such increase in 16 months.

The rise in mortgage rates may deter potential homebuyers, as it could add tens of thousands of dollars to their mortgage payments over a 30-year loan on a typical home. Mortgage applications have already seen a decline, with purchases dropping 19% last week compared to the same time last year and refinances plummeting by 65%.

According to Lawrence Yum, NAR chief economist, 'The housing market is still sluggish, with contract signings below last year.' He attributes this to higher mortgage rates offsetting increased buying power created by job gains and income growth outpacing home price growth. Zillow's chief economist, Mischa Fisher, believes the Federal Reserve's move may help mortgage rates decrease in the long run.