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No Relief for Summer Buyers as the Rate Hike Saga Continues

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No Relief for Summer Buyers as the Rate Hike Saga Continues

The Federal Reserve continues to raise its rates amid stubborn inflation in the U.S. economy, and the housing market is suffering the consequences

July 27, 2023
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Image: Nuthawut / Stock.adobe.com

The Federal Reserve hiked its interest rates yet again on Wednesday, sending mortgage rates in the same upward direction despite anticipated declines in the second half of 2023. Rates averaged 7.04% for 30-year fixed-rate loans as of Tuesday afternoon, and according to Realtor.com, the 10 previous interest rate hikes occurred at the fastest pace in 40 years.

The Fed’s goal is to bring inflation down to 2%, and after reaching a high of 9.1% in June 2022,  inflation had fallen just 3% year-over-year by June 2023. Until inflation is brought back to a normal level, the Fed will continue to bump rates higher, spelling more affordability challenges for an already pricey housing market.

“Mortgage rates are still going to stay relevantly elevated,” says Realtor.com Chief Economist Danielle Hale. “It’s certainly possible that rates could exceed 7%, but our expectation is they will begin to decline very gradually in the second half of the year as inflation goes down.”

The Fed’s goal is to bring inflation down to 2%. And while the Fed has made progress curbing inflation from a high of 9.1% in June of last year, inflation had fallen only to 3% year over year by this June. Meanwhile, the economy has remained strong and unemployment low.

“They are far more likely to freak out after a high inflation number and far less likely to relax after a low inflation number,” says Hale. “The Fed would rather err on the side of being cautious, not giving inflation any room to reignite.”

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