Interest rates rise once again as the Federal Reserve moves to cool record inflation across the United States. This week, the Federal Reserve raised rates by 0.75%. As of now, this is the highest increase in rates since 1994. The reserve indicates even more rate hikes will happen later this year. The hope is to ease inflation while also not causing an economic recession.
“It is essential that we bring inflation down if we are to have a sustained period of strong labor market conditions that benefit all.”Jerome Powell – Federal Reserve Chair
Economists say when the Federal Reserve changes its rate, it causes a trickle-down effect, impacting everything else that involves interest rates. The increase affects credit cards, student loans, home and car loans, banking, savings accounts, everyday business operations, and more.
Interest Rate Increase: What Does it Mean for Housing?
NPR suggests the most significant impacts of the interest rate increase will be felt by those on the path to homeownership. Specifically, those applying for mortgages will feel the impact of the latest rate hike. Right now, the average 30-year fixed rate is well above 6%. Earlier this year, the same rate was around 3.25%.
“Housing is getting less affordable for everyone at every level.”Daryl Fairweather – Redfin Chief Economist
For example, on a $400,000 mortgage loan, the interest hikes have driven a $1,700 mortgage to closer to $2,500 per month over the course of a few months. The rapid increase is pricing many people out of the market. In fact, NPR found mortgage applications are down 15% since last June.
Federal Reserve Chair Jerome Powell also commented on the challenges potential homebuyers face in today’s market. “I would say, if you’re a homebuyer, a young person looking to buy a home: You need a bit of a reset. We need to get back to a place where supply and demand are back together and where inflation is down low again and mortgage rates are low again,” said Powell.