As the Fed continues to battle inflation, interest rates were raised by another 0.75% yesterday, September 21. “We will keep at it until the job is done,” Fed chairman Jerome Powell said. “The longer inflation remains well above target, the greater the risk that the public begins to see higher inflation as the norm, and that has the capacity to really raise the cost of getting inflation down.”
In August, the annual inflation rate was 8.3%, which was down slightly from July and while the price of gasoline, used cars, and airline tickets have dropped, other costs such as rent, groceries, and electricity continue to climb, NPR reports. Florida Realtors speaks to this in their recent article, U.S. Inflation Falls for 2nd Straight Month.
Needless to say, the housing market is feeling these effects and is in fact one of the biggest contributors to inflation. Last week, mortgage rates climbed from 5.89% to 6.02%, the highest since the 2008 housing crash, and double from this time last year at 2.89%.
To put things in perspective, “a borrower who buys a $500,000 house with a 20% down payment and a rate of 2.86% could expect to pay about $200,000 in interest over 30 years for their $400,000 loan. If their rate is 6.02%, they could pay $465,000 in interest,” according to a mortgage calculator by Bankrate.com
Yesterday’s rate hike means fixed-rate home loans, such as 30- and 15-year mortgages, are likely to trend higher in the coming weeks, which is bad news for buyers who are already dealing with higher mortgage rates compared with a year ago, “however, it’s possible that mortgage rates may not move significantly, said Jacob Channel, senior economist for LendingTree. “Remember that while the Fed’s actions do impact mortgage rates, it doesn’t directly set them.”
While that may be true, on the other side, mortgage rates have been rising since the beginning of 2022, and “The Fed will continue to hike rates until it restrains the economy and intends to keep rates at those restrictive levels until inflation is unmistakably on its way to 2%,” Greg McBride, chief financial analyst for Bankrate.com. To learn more about the future of our economy and the latest interest rate hike, read here.
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