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Mortgage Rates Hit 5.78%, Highest Level Since 2008

U.S. mortgage rates have recently hit their highest level since November of 2008.  This is the latest signal of turmoil tied to the Federal Reserve’s attempts to cool inflation.  According to a report published by Zillow, the average 30-year fixed-rate mortgage rate is 5.61% as of June 16th, which is up from rates of below 3% in 2021.

Causes of This

The Fed has been raising the benchmark interest rate as part of its effort to stop inflation, and cool the housing market as well as the economy holistically.  As the Fed attempts to combat inflation, many are watching very closely since no one for sure knows for sure what the effects of raised rates will be.  Out of those keeping an eye on the Fed, one group is worried that the large rate raises could tip the US into a recession.  The most recent rate raise was by 0.75 percentage points, which is also the biggest rate raise since 1994.

Mortgage rates do not directly increase based on Fed raises, but are without doubt influenced heavily by them.  Although this is the case, the Fed does directly control a short-term rate which has been raised by 1.5 percentage points.  The overall average mortgage rate has risen by nearly 2.7 points, which is also the steepest in decades.

Effect on the US Economy

Real estate makes up a significant portion of the U.S. economy and is affected by interest rates.  When mortgage rates rise, many Americans can face increases in their monthly payments which can rise by hundreds of dollars.  The Fed’s rate raises are affecting the real estate market, with demand for housing slowing, as well as commercial real estate.

Wrap Up

With so many variables in play in the real estate market right now it is hard to tell when housing prices will drop to their lowest.  It is also almost impossible to tell how many more rate increases the Fed will carry out.  This being said, if you have any questions or comments on how you may be affected, feel free to give us a call.

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