As inflation in the United States has soared over the past 12 months, the Federal Reserve to take action to cool the economy and slow the rate of inflation that has caused chaos for consumers. The Fed has raised interest rates significantly to slow the pace of price increase, but that has had significant consequences for homeowners.
The average mortgage rates for Saturday, 22 October 2022 are as follows:
– 30-year fixed mortgage: 7.197%
– 20-year fixed mortgage: 7.020%
– 15-year fixed mortgage: 6.329%
– 10-year fixed mortgage: 6.542%
– 5-year adjustable rate mortgage: 6.111%
In response to the changes the uptake of new mortgages and of property purchasing in general has cooled significantly. Last month the benchmark fixed rate on a 30-year fixed mortgage, the most widely-used form of homeowner loan in the United States, hit 6% for the first time since November 2008. This is making it much more expensive for mortgage borrowers to make repayments and has cooled the demand for homes across the country.
Fed Reserve pushing up interest rates to curb spending
Since the start of 2022 the Federal Reserve has acted swiftly to slow the US economy, introducing interest rate hikes totalling 200 basis points (2%). The Fed is hoping that, by making borrowing more expensive, it will discourage consumers from buying and help ease the demand.
This, in turn, should slow the rate of price increase and bring down inflation. The decision to raise interest rates comes from the Federal Reserve not the White House. President Biden has repeatedly said that he will not interfere with the workings of the agency and backed the Federal Open Market Committee (FOMC) to set interest rates at an appropriate level.
Matthew Graham, chief operating officer of Mortgage News Daily, said that the move was “good and necessary”, but warned that it could hurt borrowers:
“The Fed is determined to hike rates as high as it can and keep them there as long as it can, even if that means the economy suffers.”
In the last week of September the Mortgage Bankers Association found that the total volume of mortgage applications had fallen by 14.2%, when compared to the previous seven days. This put it at the lowest seasonal-adjusted level since 1997, at a time when mortgage rates were at their highest in nearly 15 years.
The amount of stock remaining on the housing market for more than 30 days has risen dramatically too, with many buyers looking to wait until rates have fallen before committing to a mortgage.