Mortgage rates rise again after Fed says it will take ‘strong’ steps to curb inflation

30-year fixed-rate mortgages averaged 5.66% in the week ended Sept. 1, up from 5.55% a week earlier, according to Freddie Mac. This is significantly higher than at the same time last year, when it was 2.87%.

After starting the year at 3.22%, mortgage rates rose sharply in the first half of the year, peaking at 5.81% in mid-June. But since then, concerns about the economy and the Federal Reserve’s mission to fight inflation have made them more volatile.

Rates fell in July and early August due to fears of a recession. But Powell’s comments during a speech last Friday brought back investor attention to the central bank’s fight against inflation, leading to higher rates.

“Renewed market perception of more aggressive monetary policy has resulted in mortgage rates nearly doubling from what they were a year ago,” said Sam Cater, chief economist at Freddie Mac.

This is likely to further slow home sales and put downward pressure on prices.

“Mortgage rate hikes come at a particularly vulnerable time for the housing market as sellers renegotiate their prices due to lower consumer demand,” he said.

Mortgage rates rose after 10-year US Treasuries returned to levels not seen since June.

The Federal Reserve does not set the interest rates that mortgage borrowers pay, but its actions affect them. Instead, mortgage rates tend to track 10-year US Treasuries. When investors see or expect a rate increase, they often sell government bonds, which drives up yields, and with it, mortgage rates.

“Financial markets continue to react to the Federal Reserve’s commitment to tighten monetary policy to bring inflation closer to the 2% mark,” said George Ratiu, manager of economic research at Realtor.com.

As a result, he said, homebuyers can expect mortgage rates to stay in the 5% to 6% range for the next few months. The combination of still high inflation and rising Fed borrowing costs will keep them high.

A year ago, a buyer who invested 20% upfront on an average home price of $390,000 and financed the rest with a 30-year fixed-rate mortgage at an average interest rate of 2.87% had a monthly mortgage payment of $1,294. according to the numbers. from Freddie Mac.

Today, a homeowner buying a home at the same price with an average rate of 5.66% would pay $1,803 per month in principal and interest. That’s $509 more per month, according to Freddie Mac.

If there’s a plus for those still looking for a home, Ratiu said, it’s that homes stay on the market longer, which forces sellers to lower asking prices and leaves more room for negotiation.

“As we move into fall and the pace of sales slows even further, some shoppers may find discounts are getting bigger, offering options that fit their budget,” he said.

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