Mortgage Rates Are Over 6%, a Level Not Seen Since 2008. Why This Week’s Fed Meeting Could Push Them Even Higher

An image of a house for sale is used to illustrate an article about mortgage rates. Credit: David Paul Morris/Bloomberg via Getty Images
A ‘For Sale’ sign outside a house in Albany, California, on May 31, 2022. Homebuyers are facing a worsening affordability situation with mortgage rates hovering around the highest levels in more than a decade.
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Key Takeaways

  • The rate for a 30-year fixed mortgage rose ten basis points to 6.12% last week, the highest since 2008.
  • The Federal Reserve is likely to raise its benchmark interest rate by 75 basis points this week in its ongoing bid to reduce inflation.
  • Mortgage rates may move even higher — or they may stay the same, experts say.

Mortgage rates are above 6%, the highest they’ve been since 2008. With the Federal Reserve poised to raise its benchmark interest rate again this week, they could move even higher, experts say – or they could stay basically the same.

Experts expect the Fed will favor an increase of 75 basis points in its key rate in its ongoing bid to bring down inflation. The latest consumer price index (CPI) shows an increase of 8.3% year-over-year in August, indicating inflation is still hot. If the CPI were even 0.1% lower, “the Fed might’ve been looking at a 50-basis-point increase,” says Shashank Shekhar, founder and CEO of InstaMortgage, a digital mortgage lender. 

Mortgage rates have roughly doubled since the start of the year due to high inflation, and jumped again last week, with the average 30-year fixed rate rising ten basis points to 6.12% in a survey by Bankrate, which, like NextAdvisor, is owned by Red Ventures. A similar survey from Freddie Mac, a government-sponsored entity that plays a key role in the mortgage market, showed that average at 6.02% – its first time over 6%  since November 2008.  

Both rates jumped after last week’s inflation report. That move might have been in anticipation of the Fed’s action this week – meaning we might not see much movement after the Fed hikes rates.

“If the Fed does what everyone expects them to do, I personally don’t see the 30-year fixed rate increasing,” says Nicole Rueth, producing branch manager with the Rueth Team Powered by OneTrust Home Loans. “I think what happened after the CPI report was that reaction baking in.”

Here’s what experts anticipate is coming for the mortgage market, and what it means for borrowers.

What to Expect from the Federal Reserve 

The Fed won’t make its decision official until Sept. 21, but experts often have a good idea what’s coming, and how it might affect mortgage rates.  

“Interest rates have been bouncing around for basically the entire summer. So, I don’t think buyers are that surprised by what’s happening – it’s more of the same,” says Daryl Fairweather, chief economist at Redfin, a national real estate brokerage. “What’s worrisome is that the Fed might have to go so far as to put us into a recession to stop inflation.” 

Experts agree the Fed is likely to hike rates this month, as well as in the months leading into 2023. The question, then, is by how much? 

“The Fed has the full go-ahead to raise rates by 0.75%. It even added to the conversation the potential for a 1% increase, although personally, I don’t think that’s likely,” Rueth says. 

By making it more expensive to borrow money via higher interest rates, the goal is to curb consumer spending. Ideally, the Fed will hike rates just enough to slow demand – and reduce prices – without landing in a recession.  

How Does the Fed Affect Mortgage Rates? 

With mortgage rates topping 6% for the first time since 2008, it’s understandable that further rate hikes may be concerning for homebuyers.  

Whether the Fed decides on 75 basis points or 100 basis points, they won’t have a direct impact on mortgage rates. However, it’s likely that there will be some change. “Mortgage rates tend to go higher when you get a stronger inflation report, but there is no direct correlation” with the Fed’s rate, Shekhar says.  

Just because some interest rates will go up doesn’t mean that all rates will do the same. One possibility: That the mortgage rate market has already factored in the expected Fed rate hike. 

“In some cases, when the Fed has been really aggressive in pushing up rates, mortgage rates reacted favorably because they think that will help tame down the inflation,” Shekhar says.  

What Does This Mean for Homebuyers?

In recent months, mortgage rates have varied by the month, week, and even day. So, while a rate above 6% is not the most enticing, remember that it doesn’t have to be forever. “If you lock in a mortgage, you can still refinance when rates fall as we come out of this inflationary period. What I think people should try to plan for is what they would do if they lose their job,” Fairweather says.  

Mortgage rates are likely to remain unpredictable as the Fed works to get inflation under control. Rather than hyper-fixating on mortgage rates, experts recommend homebuyers focus on their own finances and determine the extent of what they can afford for a monthly payment.  

The consensus? Keep a finger on the pulse, but control what you can control. “I’m telling all of my clients to focus on the payments, not the rates,” says Rueth.  

Shop around for multiple quotes to ensure you get the best deal. You might get wildly different numbers from various lenders, so taking the time to do some research is well worth it in the long run. 

Pro Tip

When it comes to your mortgage, focus on whether you can afford the monthly payment rather than what the rate might do.