Mortgage rates approach 7% as Fed official floats rate hike
The central bank “should act decisively to raise” short-term interest rates if inflation doesn’t start trending downward, Fed Governor Michael Barr said.
It's looking more likely that the fall homebuying season will have to deal with mortgage rates in the 7% range, with a volatile bond market and persistent inflation continuing to stymie potential buyers hoping to get a break while demand is slower.
September is kicking off with the 10-year treasury yield at a 20-month high, while 30-year mortgage rates bumped up to 6.89% Tuesday morning, according to Mortgage News Daily. A week ago, the daily rate averaged 6.77%.
The treasury bonds were responding to a variety of developments, including renewed military strikes in the Middle East that have again pushed oil prices and inflation fears higher.
Fed governor hints at rate hike: Adding to the possibility that mortgage rates could remain elevated, Federal Reserve Governor Michael Barr said in a Sept. 1 speech that unless inflation data trends downward, the Fed "should act decisively to raise rates."
"With inflation above target for a protracted period, there is a risk of broader price pressures taking hold, a risk I am watching closely," Barr said in the speech for the Second-Chance Lending Forum.
The CME Group FedWatch tool has also indicated that the odds of a rate hike are increasing, with the chance of a quarter-point rate hike now standing at 68.2%.
What a rate hike would mean for real estate: While short-term rates are not directly tied to mortgage rates, a hike at the Fed's Sept. 15-16 meeting would be a clear sign that the central bank believes rising consumer prices once again pose a problem for the broader economy.
The Fed's preferred inflation readings showed prices were up 3.7% year-over-year in July and up 3.3% when more volatile food and energy categories were removed. The U.S. Bureau of Labor Statistics is scheduled to release its August inflation report on Sept. 11.
If the Fed does decide to raise short-term interest rates, the move will likely mean more short-term pain for long-term gain in housing, according to Jake Krimmel, senior economist at Realtor.com.
"In the short run, I would not predict any real mortgage rate relief this fall," Krimmel said in an email last week. "But taming inflation as soon as possible can put the housing market in a much better place — on mortgage rates and on purchasing power — in the next 6 to 12 months, and beyond."