Rates rose as the Federal Reserve took action to curb soaring inflation. On Wednesday, the central bank announced it was raising interest rates for the first time since 2018. This action marks the end of the Fed’s policy in the era of the pandemic. The federal funds rate is now 0.25-0.5%.
Mortgage rates are not directly related to the federal funds rate. Rather, they track 10-year Treasury yields, which are influenced by many factors, including investor reaction to the Fed and inflation.
“The Federal Reserve’s hike in short-term rates and signaling further increases means mortgage rates should continue to rise throughout the year,” said Sam Hater, chief economist at Freddie Mac.
Rising inflation and uncertainty in Ukraine also affect rates.
“Inflation is unlikely to slow down anytime soon,” said George Ratiu, manager of economic research at Realtor.com. “Investors are reacting to the deepening war in Ukraine and expect new supply chain disruptions to put additional pressure on consumer prices.”
All of these factors will continue to drive up mortgage rates in the coming months, he said. This means that one of the main drivers of home sales over the past two years – ultra-low mortgage rates – is drying up.
“Record low mortgage rates have helped many first-time homebuyers increase their budgets in 2020 and 2021,” Ratiu said. “Low rates have also allowed homeowners to lower their monthly mortgage payments through refinancing. However, the days of interest rates below 3% are behind us and we have yet to resolve the market fundamentals of supply and demand.”
Inventories are still at an all-time low and home prices continue to rise. Soaring rental rates are putting additional pressure on the market, as in some markets buying a home — even with high prices and rising interest rates — makes more financial sense than renting.
This is an evolving story and will be updated.