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Mortgage applications are down to their lowest level since 2000, according to the Mortgage Bankers Association. That rapid increase in cost already has priced some potential homebuyers out of the market. It’s going to be ugly during the transition, but I think what we’ll end up with is a market which is more healthy because it is not healthy to have a housing market where home prices are rising 20% per year or more,” Ian Shepherdson, the founder and chief economist at Pantheon Macroeconomics, told NPR.
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“These numbers are all going to get worse before they get better. Builders started fewer homes in June than they did in May.
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Now, homes are starting to sit on the market longer, and more sellers are cutting prices to find buyers. Last year, buyers routinely paid tens of thousands of dollars over asking price and waived contingencies to stand out in a pile of other offers on a home that had been listed only a day or two. That sudden increase in monthly payment cost has started to cool the country’s historically hot housing market. Given a loan of $400,000, the increase in interest rates has turned a monthly mortgage payment of about $1,700 into one approaching $2,300 in the span of just a few months. Earlier this year, a 30-year fixed-rate mortgage could be had for around 3.25%. Since June, the average 30-year rate has hovered above 5.5%, according to Mortgage News Daily. With inflation so bad right now, mortgage rates rose throughout the spring and have stayed high into the summer. But mortgage lenders move their rates up and down based in part on what they expect the Fed to do. The Fed’s interest rate isn’t directly tied to mortgage rates. Losers: People trying to buy a home right now That means the stakes are high when the Fed raises rates, as it did on Wednesday. Generally speaking, as the Federal Reserve raises its benchmark interest rate, everything else in the economy that involves interest rates of some kind is affected – and that’s most things: credit cards, student loans, home and car loans, banking, savings accounts, the everyday operations of businesses, you name it. And that will slow the economy,” Aaron Klein, a senior fellow at the Brookings Institution, told NPR before another recent rate hike. And now they’re trying to correct their mistake by pretty quickly hiking interest rates. “The Federal Reserve got inflation wrong. The Fed will meet several more times this year the next meeting is in September. “It is essential that we bring inflation down to our 2% goal if we are to have a sustained period of strong labor market conditions that benefit all,” said Federal Reserve chairman Jerome Powell at a press conference Wednesday.Īnd the Fed will continue to raise rates as needed throughout the year if inflation doesn’t abate, Powell says. By raising interest rates, which makes things more expensive, the central bank is hoping to dampen Americans’ willingness to spend money. Inflation is driven by strong consumer demand. In short, interest rates are the Fed’s main tool to combat inflation. central bank in its quest to rein in the record inflation that has sent prices soaring for everything from gas and groceries to clothes and housing.īut what do the Federal Reserve’s interest rate hikes actually mean for hundreds of millions of Americans – Americans who have jobs, who buy things, who have bank accounts? On Wednesday, the Fed raised its benchmark interest rate by 0.75%, the second hike of this magnitude in just two months by the U.S. (Spencer Platt/Getty Images)Īnother month, another Federal Reserve interest rate hike. With inflation still sky-high, the Federal Reserve announced Wednesday it would raise interest rates by 0.75%, the largest increase since the 1990s.