Housing News

The Fed Just Hiked Interest Rates. What Does That Mean for Mortgage Rates?

Mortgage interest rates may continue to rise after the U.S. Federal Reserve voted to hike interest rates for the first time in three years.

The Fed announced on Wednesday that it was raising its benchmark rate by a quarter of a percentage point. This was the first increase since July 2023.

While mortgage rates are separate from the Federal Funds rate, they tend to move in the same direction. So, if the Fed signals an increase is on the horizon, mortgage rates typically go up.

“Mortgage rates are more likely to move higher than lower between now to the end of the year,” said New American Funding Chief Investment Officer Jason Obradovich.

He anticipates rates could start easing by March, giving homebuyers and homeowners hoping to refinance some relief. But that hinges on whether oil prices and inflation come down and the strength of the jobs market.

Mortgage rates averaged 6.76% for 30-year, fixed-rate loans in the week ending Sept. 10, according to Freddie Mac. But they’ve since spiked above 7%, according to Mortgage News Daily.

The conflict with Iran resulting in higher oil prices and inflation have helped to push mortgage rates up.

Raising rates may not be a bad thing for the housing market. The faster the Fed gets inflation under control, the quicker it can lower rates. This is likely to result in falling mortgage rates.

And once mortgage rates decrease, more homebuyers are expected to come off the sidelines.

In the meantime, homebuyers should be savvy when they negotiate with sellers. With less competition in the market, they may be able to secure a lower price, some help covering their closing costs, or even have the seller buy down their mortgage rate for the first few years of their loan.

“With rates being higher, that impacts demand for housing,” said Obradovich. “So, buyers should be able to either request concessions on a purchase or seek closing costs credits from sellers to buydown to a lower rate.”