As central banks around the world maintain an aggressive stance towards tightening monetary policy, mortgage rates achieved their highest levels in over 10 years. With the Federal Reserve’s latest meeting, they raised the federal funds rate by 75 basis points in their fight against inflation.
Federal Reserve Raises Federal Funds Rate by 75 Basis Points Again
Predictably, the Federal Reserve raised the federal funds rate by 75 basis points to a target range of 3.00% – 3.25% at Wednesday’s meeting. Also, the Federal Reserve indicated that more rate hikes are coming. Chair Powell said that the Fed plans to keep fighting inflation “until the job is done.”
The latest Fed quarterly projections indicated that the federal funds rate will reach a peak of 4.60% early next year. Overall, this forecast comes in a little higher than expected. Furthermore, analysts expect it to remain at that level at least until the end of 2023. As mortgage rates achieved their highest levels in a decade, Powell described the housing market as needing “supply and demand to get better aligned”. He believes that a better alignment holds the potential to bring down inflation. Finally, Powell suggested that we probably “have to go through a correction” for this to occur.
Existing Home Sales Decline as Mortgage Rates Achieve Highest Levels in Over a Decade
As mortgage rates achieved their highest levels in over a decade, sales of existing homes fell yet again. For the seventh straight month, existing home sales decreased in August 2022. Now, existing home sales dropped to the lowest level since 2015 (excluding a brief dip near the start of the pandemic). Statistically, they declined 20% lower than last year at this time.
On the inventory front, levels remained roughly unchanged from a year ago. Currently, existing home inventory sits at just a 3.2-month supply nationally. In other news, the median existing-home price of $389,500 rose 8% higher than a year ago. Notably, this accounts for the smallest annual rate of increase since early 2020. In addition, it decreased from a record high of $413,800 in June 2022.
Housing Starts and Home Builder Sentiment Provide Discouraging Data
Additionally, a separate survey of home builder sentiment from the NAHB declined for the ninth straight month. As of now, home builder sentiment plunged to its lowest reading since May 2014 (again excluding a brief period early in the pandemic). 24% of builders reported price reductions, up from 19% the prior month. In tandem with mortgage rates achieving a new milestone, new construction faces higher costs. More so, shortages for land, materials, and skilled labor present major issues to a faster pace of construction.
Although greater home inventory helps to resolve the country’s real estate challenges, the latest housing starts data proved to be quite discouraging. From July to August 2022, overall housing starts showed a solid increase. Despite the growth, analysts attributed the rise almost entirely due to strength in multi-family units. On the other hand, housing starts for single-family units remained near the lowest levels since early 2020.
Looking Ahead After Mortgage Rates Achieve Highest Levels in Over 10 Years
After mortgage rates achieved their highest levels in over a decade, investors hope for more specific guidance on the pace of future rate hikes. In addition, investors still seek insights into the Federal Reserve’s bond portfolio reduction strategy. Next week, New Home Sales and Consumer Confidence release on Tuesday. The core PCE price index, the Fed’s favored inflation indicator, publishes on Friday.
As the Federal Reserve raised the federal funds rate by 75 basis points, the market saw mortgage rates achieve the highest levels in over 10 years. Never miss an update with MBSQuoteline. To receive by-the-minute updates on mortgage-backed securities, try our platform free for 14 days.
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