Why the Recent Interest Rate Hike by the Fed Spells Trouble for Homebuyers and Sellers

The recent interest rate hike by the Federal Reserve could negatively impact the already fragile spring housing market. Mortgage interest rates are expected to rise, hurting both buyers struggling with high home prices and sellers facing fewer potential buyers. The housing market had begun to recover, with mortgage rates temporarily falling to the low 6% range, but this expected rate increase could halt this momentum.

The Fed has been raising its rates to tackle high inflation, including sticker shock from high grocery prices and double-digit rent hikes. Although mortgage rates are separate from the Fed’s short-term interest rate, they have been moving in the same direction: up. Even small fluctuations in these figures can add up to significant costs for homebuyers.

Mortgage rates had already increased to 6.7% nationally in anticipation of the Fed’s increase. Mortgage applications had only just begun to rise before the news, with a 17.5% increase in homebuyer applications in the week ending March 17 compared to four weeks earlier, but they were still down 36% from last year when the market was at its peak.

Sales of existing homes also surged, rising 14.5% in February from January, but sales were down 22.4% from a year ago. While there may be a pick-up in sales this spring, it is unlikely to match last year's numbers. The Fed's rate hike could help control inflation and lead to lower mortgage rates in the long run, but this may require a recession, and potential job losses could scare away homebuyers. Overall, the Fed's rate hike could have a significant impact on the housing market.