Fed Hikes Rates for First Time Since 2018; Housing Market Expecting Higher Mortgage Rates as Result

DENVER, CO – On Wednesday the Federal Reserve approved its first rate hike in over three years – in addition to announcing a series of six additional increases over the course of 2022 – as a means to address skyrocketing inflation while continuing to encourage economic growth. Experts are anticipating that the housing market will face an impact from these increases in the form of higher mortgage rates.

The Fed’s Federal Open Market Committee approved a 0.25 percentage point rate hike during their meeting on Wednesday, the first such increase since December 2018; in addition, officials indicated that there would be additional rate rises coming at each of the Committee’s remaining six meetings in 2022.

Despite the fact that mortgage rates do not follow the federal funds rate, they do typically follow the yield on the benchmark 10-year Treasury note; upon the announcement of the Fed’s rate hike, the 10-year Treasury note yield jumped to 2.246 percent, its highest level since May 2019.

The 10-year Treasury note is a debt obligation issued by the United States government with a maturity of 10 years, and pays interest at a fixed rate once every six months and pays the face value to the holder at maturity.

With the hike’s effect upon the 10-year Treasury yield and subsequent influence upon mortgage rates – combined with nationwide economic issues due to rising inflation, supply chain disruptions, and the ongoing war between Russia and Ukraine – experts are encouraging anyone who is considering purchasing a home with a fixed-rate mortgage to do so as quickly as possible before the current historically-low rates start to climb.

The Mortgage Bankers Association notes that mortgage rates are experiencing some degree of volatility as of late and have already seen an uptick in anticipation of the Fed’s announcement; the average interest rate for a 30-year fixed-rate mortgage with $647,200 or less in conforming loan balances jumped on March 11 from 4.09 percent to 4.27 percent, with points rising to 0.54 from 0.44 for loans with a 20 percent down payment.

In addition, home refinance loans last week decreased 3 percent week-over-week and were 49 percent lower year-over-year.

Experts say that the Fed’s rate hikes are what is needed to being the nation’s skyrocketing inflation back under control, given that currently the country’s unemployment rate is below 4 percent while inflation creeps toward 8 percent; the Russia/Ukraine war is also likely to cause the prices of goods and services to increase as well.

Given the world’s current geopolitical situation and the uncertainties regarding the United States’ monetary policy – and the impact of these situations on mortgage rates in recent weeks – the Fed’s actions are expected to hopefully reduce the uncertainty and diminish some of the volatility in the mortgage industry currently.

Experts say that they expect the Fed’s rate hikes to cause mortgage rates to increase over the course of the next year to approximately 4.5 percent.

The Fed’s Federal Open Market Committee issued a statement after Wednesday’s meeting, saying that they anticipate “that ongoing increases in the target range will be appropriate.” In addition, Fed Chairman Jerome Powell stated at his own post-meeting news conference that the Committee is doing everything it can to get the country’s inflation back under control.

“We are attentive to the risks of further upward pressure on inflation and inflation expectations,” Powell said. “The committee is determined to take the measures necessary to restore price stability. The U.S. economy is very strong and well-positioned to handle tighter monetary policy.”