Fed Rate Hike Pushes Mortgage Rates to Highest Since 1987

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After the Federal Reserve took aggressive action to raise its benchmark interest rate, mortgage rates rose at their fastest pace since 1987. The New York Times reported that as of June 16, rates on 30-year fixed-rate mortgages averaged 5.78% — up from 5.23% the week before, according to Freddie Mac’s primary mortgage survey.

Federal Reserve Chairman Jerome Powell said the 75-basis-point hike on June 15 was due in part to the Federal Reserve being worried about rising inflation, CNBC reported. The Consumer Price Index in May posted an 8.6% increase over the past year, and Fed officials are saying that they will continue raising interest rates until inflation holds at 2%. 

While the rates on 30-year fixed mortgages don’t move simultaneously with the Fed’s benchmark rate, The New York Times pointed out that they do track the yield on 10-year Treasury bonds. These bonds are influenced by several factors, including expectations around inflation, the Fed’s actions and how investors react.

“These higher rates are the result of a shift in expectations about inflation and the course of monetary policy,” Sam Khater, chief economist at Freddie Mac, said in a statement, NYT reports. “Higher mortgage rates will lead to moderation from the blistering pace of housing activity that we have experienced coming out of the pandemic, ultimately resulting in a more balanced housing market.”

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With the 30-year fixed-rate mortgage rising by nearly 300 basis points, it means that on a $300,000 mortgage, the monthly payment has risen from $1265 in December to $1800 today, says Lawrence Yun, chief economist at the National Association of Realtors. Yun also noted that only when inflation tops out will mortgage rates stabilize or even decline.

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