Federal Reserve’s Steady Policy Rate Could Push Mortgage Rates to 8%

The U.S. Federal Reserve’s decision to maintain its policy interest rate steady on Wednesday, September 20, 2023, might potentially trigger a surge in mortgage rates, possibly reaching as high as 8%, according to real estate economists. Despite the central bank’s announcement not including a hike in its benchmark rate, several officials anticipate another increase before the year ends.

Lawrence Yun, chief economist at the National Association of Realtors, suggested that the short-term could witness a substantial rise in mortgage rates following the Federal Reserve’s decision. This projection aligns with the 10-year Treasury note yield, which was over 4.4% on Thursday and is expected to hit 4.5%.

Yun also noted the potential for mortgage rates to soar to 8% in the short term before experiencing a downturn by spring next year as economic conditions cool off. This scenario would coincide with a slump in home sales, which were already on a downward trend in August and could potentially plunge further if rates escalate.

Danielle Hale, chief economist at Realtor.com, stated that unless new data leads to a reevaluation of the economic outlook, mortgage rates are unlikely to drop in light of the Federal Reserve’s potential for another rate hike. She emphasized that this situation would mean homebuyers continue to grapple with affordability challenges.

Orphe Divounguy from Zillow (NASDAQ:) also expects rates to stay elevated until other economic indicators demonstrate signs of deceleration. He remarked that mortgage rates have been highly volatile this year due to investors’ reactions to shifting inflation and economic data based on their forecasts about the Federal Reserve’s future actions.

Divounguy added that next week’s inflation figures could trigger significant fluctuations in mortgage rates. The uncertainty surrounding these rates is anticipated to linger until the Federal Reserve concludes its tightening cycle.

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