Mortgage rates have climbed sharply ahead of the Federal Reserve’s Sept. 16 meeting as investors anticipate another increase in short-term interest rates. Rising Treasury yields, persistent inflation concerns and higher oil prices pushed the average 30-year mortgage rate above 7% for the first time in 16 months.
Mortgage News Daily placed the rate at 7.17% this week, nearly a full percentage point higher than a year ago.
Markets now see a September rate hike as highly likely because inflation has shown few signs of easing. However, a Fed increase would not automatically push mortgage rates higher. Mortgage rates are influenced more directly by Treasury yields, inflation expectations and investor sentiment than by the Fed’s short-term benchmark rate.
Some economists believe a quarter-point increase could reassure investors that the Fed is serious about controlling inflation. If that reduces long-term inflation concerns and Treasury yields retreat, mortgage rates could stabilize or even decline. Much will depend on the Fed’s economic projections and what policymakers signal about future rate decisions.
For homebuyers who cannot postpone a purchase, adjustable-rate mortgages are becoming more popular. These loans may offer a lower initial rate, with borrowers hoping they can refinance if mortgage rates eventually fall. In the meantime, elevated borrowing costs may require some buyers to reduce their price range or adjust their expectations.
