Wednesday’s rate hike by the Fed was its biggest in a single action since 1994.
The brisk jump in rates, along with a sharp increase in home prices, has been pushing potential homebuyers out of the market. Mortgage applications are down more than 15 per cent from last year and refinancings are down more than 70 per cent, according to the Mortgage Bankers Association.
Those figures are likely to worsen with more Fed rate increases a near certainty.
The Fed’s unusually large rate hike came after data released last week showed US inflation rose last month to a four-decade high of 8.6 per cent. The Fed’s benchmark short-term rate, which affects many consumer and business loans, will now be pegged to a range of 1.5 per cent to 1.75 per cent, and Fed policymakers forecast a doubling of that range by year’s end.
Higher borrowing rates appear to be slowing the housing market, a crucial part of the economy. Sales of previously occupied US homes slowed for the third consecutive month in April as mortgage rates surged, driving up borrowing costs for would-be buyers as home prices soared.
On Tuesday, the online real estate broker Redfin, under pressure from the cooling housing market, said Tuesday that it was laying off 8 per cent of its workers.
Homeownership has become increasingly difficult lately, especially for first-time buyers. Besides staggering inflation, rising mortgage rates and soaring home prices, the supply of homes for sale continues to be scarce.
The average rate on 15-year, fixed-rate mortgages, popular among those refinancing their homes, rose to 4.81 per cent from 4.38 per cent last week. A year ago, the rate was 2.24 per cent.