Recent Mortgage Market Developments: Rising Rates Due To Fed Pressure
Nov 23, 2022 By Susan Kelly

According to a poll conducted by Bankrate of major lenders around the country, the national average for 30-year fixed-rate mortgages increased to 7.08 percent this week from 7.07 percent the week before.

The housing market is in disarray as mortgage rates hover near their highest levels since 2002. With its fourth consecutive rate hike of three-quarters of a percentage point, the Federal Reserve is exerting upward pressure on mortgage rates and increasing the likelihood of a recession.

Mortgage Interest Rate Forecast

The only question that remains is how much interest rates will rise as a result of the Federal Reserve's decision to take action against inflation. Professionals in the mortgage sector are certain that rates will go up as a direct result of this move.

According to Mike Fratantoni, MBA's chief economist, "refinance activity has practically stopped, and house purchase activity has slowed substantially" as a result of mortgage rates remaining above 7%. "Affordability has been severely hampered by the recent trends of high mortgage rates and rapid property price appreciation. Once inflation cools and the top of this rising cycle is in sight, mortgage rate volatility should subside.

Methodology polls major financial institutions every week nationally. Bankrate collects interest rate data from the ten largest banks and thrifts in 10 major U.S. markets to calculate the National Average. Our Market Analysis team contains rates and yields on bank deposits, loans, and mortgages for the nationwide survey. After more than 30 years of doing things the same way, we know that our survey provides a reliable, nationwide apples-to-apples comparison.

Compared to other national polls, especially Freddie Mac's weekly announced rates, ours are different. Freddie Mac weekly polls lenders for prime conventional conforming home purchase mortgage rates and points based on a loan-to-value of 80%. According to Freddie Mac, the proportion of each type of lender represented in their weekly lender survey ("Lenders surveyed each week") is roughly equivalent to the share of the national mortgage market that each type of lender controls.

Mortgage Rates Will Rise Due To The Latest Fed Increase

It is anticipated that the most recent interest rate hike, which was implemented by the Federal Reserve on Wednesday and amounted to 0.75 percentage points, will deepen pressure on the housing market while also pushing up mortgage rates, which have already reached nearly 20-year highs.

The Federal Reserve's latest attempt to curb inflation by increasing company costs is the interest rate hike announced on Wednesday. In addition to chilling the housing market and possibly increasing rents, interest rate hikes are making new mortgages considerably more expensive.

Fed Chairman Jerome Powell stated on Wednesday, in conjunction with the announcement of new interest rate hikes, that the economy is still a long way from reaching the point where he anticipates a decline in the cost of the rent.

Declining Housing Activity

According to the Mortgage Bankers Association (MBA), the slowdown in housing activity and the increase in mortgage rates will contribute to a slower pace of expansion in home prices. In 2023 and 2024, the prediction predicts that property values across the country will remain relatively stable.

According to MBA vice president and deputy chief economist Joel Kan: "This will enable household incomes some much-needed time to catch up to high property values." Yet, even if national price measures are virtually intact, housing prices will fall in many regional markets.

Decreasing Rates Of New Building Development

Kan predicted that first-time buyers would make up a significant share of the housing market in the coming years. However, there are fewer homes suitable for first-time buyers since more current homeowners are opting to stay put rather than take advantage of the market and take advantage of the historically low mortgage rates.

Because of declining new construction activity and a lack of available homes on the market, the housing supply is expected to remain tight. Mortgage delinquencies are now low but are expected to increase if the overall unemployment rate rises during a recession, according to MBA.

Concluding Statement

In contrast, the seasonally adjusted annual rate of sales of new single-family dwellings that were recorded by the Census Bureau in the same month declined by 10.9 percent to 603,000 units. However, according to National Association of Realtors chief economist Lawrence Yun, the most recent rate hike may not significantly alter rising interest rates because they are already factored into many estimates.