Wednesday, November 30, 2022

Federal Reserve prepares for further hikes as mortgage rates drop

Average long-term US mortgage rates eased again this week as the Federal Reserve continues to raise its benchmark lending rate in its ongoing fight to tame inflation.

Mortgage buyer Freddie Mac reported Thursday that the 30-year rate fell to 5.30% from 5.70% last week. A year ago the average 30-year rate was 2.90%.

The 30-year rate rose to 5.81% on June 24 and has been declining since then.

Popular among those refinancing their homes, the average rate on a 15-year, fixed-rate mortgage fell to 4.45% from 4.83% last week. The rate was 2.26% a year ago.

The Federal Reserve last month raised its benchmark rate by three-quarters of a point, the biggest single increase since 1994. In the notes of its meeting released on Wednesday, Fed policymakers indicated that much higher interest rates may be needed to rule out four-decade high inflation.

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He also acknowledged that his rate hike could weaken the economy, but suggested such moves were necessary to slow the rise in prices on the Fed’s 2% annual target.

House For Sale
Sales of previously authorized US homes slowed for the fourth straight month in May.
Associated Press

The Fed’s unusually large rate hike comes after government data showed inflation hit a four-decade high of 8.6% in May. The Fed’s benchmark short-term rate, which affects many consumer and business loans, will now be pegged at a range of 1.5% to 1.75% — and Fed policymakers anticipate doubling that range by the end of the year.

High lending rates have discouraged house hunters and cooled the housing market, one of the most important sectors of the economy. Sales of pre-occupied homes slowed for the fourth consecutive month in May.

Home prices continued to climb in May, despite slowing sales. The national median home price jumped 14.8% in May from a year earlier to $407,600 – an all-time high according to NAR data going back to 1999.

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Mortgage applications are down 17% over the past year and refinances are down 78%, as the Mortgage Bankers Association reported this week. Those numbers are unlikely to improve much as a higher Fed rate increases with near certainty.

Layoffs have started in the housing and lending sector. Last month, online real estate broker Redfin said it was laying off 8% of its workforce and Compass said it was laying off 450 employees.

The nation’s largest bank by assets, JPMorgan Chase, is laying off hundreds from its mortgage arm and hiring hundreds of others elsewhere at the firm.

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