Mortgage rates vis-a-vis the Fed rate hike

I'm sure it's news to no one that this week, the Fed made the largest interest rate increase since the early 90s in an attempt to rein in inflation. The .75% rate hike will make borrowing money more expensive for all of us, whether that be for mortgages, car loans, or even carrying credit card debt. And that's the idea. But since economics is not my forte, you can check out this NYT piece for more info on the reasoning behind the hike.


What I do want to talk about here is where we are with mortgage rates and where we might go in the near-term. First of all, thought I'd share a quick visual of how things have changed since the beginning of this year:


Source: https://www.freddiemac.com/pmms


So you can see why anyone who started their home search in January would now be very unhappy about how things have changed with the rates, and consequently, their buying power. But will things get worse? Better? When?


I reached out to a few of my trusted lenders to get their take and here are a few things I heard:


  • Rates have been quite volatile for the past few months, and even more so in the past week -- changing as much as a half percentage point in the course of a day.


  • To some extent, the Fed's rate increase has already been baked into the rates we're seeing now (as of yesterday, around 5.75% for a conventional loan), though one of my lenders did say she expects continued increases "in short order."


  • All three lenders I spoke with thought mortgage rates could go to 7% (or a bit over) this year, but two of them added that they thought they probably won't stay there for long -- they expect rates to peak this summer and then settle back down in the fall or winter. (Good news if you end up buying at the peak, as a better rate through refi in the near-time might be an option.)


  • If you're shopping for a mortgage right now, a portfolio loan might be the way to go -- normally these loans carry slightly higher rates than those that are being resold to Fannie/Freddie on the secondary market, but apparently right now they are lower. Compared to the conforming rate of around 5.75%, Rockland Trust, which portfolios all its loans, is currently offering 4.75% for both jumbo and conventional 30-year fixed mortgages, and First Republic's rates for the same can be as low as 3.95%. Happy to connect you with one of these lenders if you'd like to investigate a portfolio option!


Note: all rates were as of Thursday, June 16, 2022.