Why Mortgage Rates Could Hold Steady After the Federal Reserve’s 0.75% Rate Hike

An image of a home with a graph of money behind it is used to illustrate an article about mortgage rates. Credit: Getty Images
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The Federal Reserve once again hiked its benchmark interest rate this week, a fourth consecutive increase of 75 basis points.

What does that mean for mortgage rates, which are already above 7% for the first time in 20 years

Maybe not much.

“What’s tricky about watching what the Federal Reserve is doing is that it doesn’t always directly translate into a one-to-one change in mortgage rates,” says Ali Wolf, chief economist at Zonda, a home construction data firm. “There have been times following the Fed’s meeting where mortgage interest rates have actually gone down and times when mortgage rates go up.”

The Fed raised its federal funds rate — a short-term rate that determines how banks borrow money from each other — by 75 basis points as part of an ongoing bid to rein in the highest inflation since the 1980s. Experts say the mortgage market has likely already “baked in” that change, moving up in anticipation of it, and that mortgage rates shouldn’t move much, barring a surprise. 

Past Fed hikes offer frustratingly little guidance for what to expect, as the response by mortgage rates to previous increases has been all over the map.

“For a few months now, markets have been surprisingly surprised to hear [Federal Reserve Chairman] Jerome Powell come out and say ‘we’re hiking rates three-quarters of a point,’” says Jeff Tucker, a senior economist at Zillow.

Here’s what experts are watching for at this week’s Federal Reserve meeting, and what it all means for homebuyers.

The Fed’s Signals Matter More Than the Rate Hike

The Federal Reserve’s November rate hike wasn’t much of a surprise. The big question, experts say, is whether this is the last 75-basis-point increase for the central bank amid the ongoing effort to tame inflation, which was 8.2% year-over-year in September. Experts say the Fed’s hawkishness — how committed they are to aggressively raising rates — will dictate what markets expect in the future.

In Wednesday’s press conference, Powell signaled the current aggressive trajectory will continue for at least a little while longer, saying,”It’s premature to discuss pausing. It’s not something we’re thinking about.” As a result, you can expect that mortgage rates won’t be dramatically affected.

On the flip side, if Powell had forecast a slow down in rate hikes, there would be much more of a shock to financial systems, Wolf says.

What the Federal Reserve Means for Homebuyers

Your decision to buy a home should be based far more on your own financial situation than on the pronouncements of a central banker in Washington. With interest rates rising and home prices still high, here are some things to consider when making that decision:

Watch the Monthly Payment

If you can afford the monthly payment on a home, and you want the home, go for it, Tucker says. Regardless of what the interest rate is, the monthly payment is what you’ll need to fit in your budget.

“What I would ask myself is: Can I afford this home and is it the right home that meets me and my family’s needs for at least the next few years, ideally the next several years?” Tucker says.

Lock a Rate You Can Afford

The day-to-day movement of mortgage rates doesn’t matter as much for the individual homebuyer, as you’re just getting the one mortgage at one rate. So lock one you can afford when you get the chance, because they might go up.

“If they find a house that they love, then they should absolutely pull the trigger,” says Joe Allen, a senior mortgage lending officer at Quontic Bank, an online community development financial institution.

Jump on a Deal When You Find It

Home prices are starting to drop, but they won’t drop forever. How low they’ll go and how long they’ll stay there will depend in part upon your market, experts say.

“There’s a balance between patience and paralysis, and you want to make sure when you see the right opportunity you are ready to act on it,” says Erin Sykes, chief economist at the real estate firm Nest Seekers International. “These pullbacks don’t typically last very long. If you see prices going down on a particular home that you want or a particular area that you want to be in, make sure your ducks are in a row financially and have your preapprovals and have your agent picked out and be ready to act.”