Historic inflation reading pushes mortgage rates higher

Markets expect a possible full-percentage-point increase from the Fed, one expert says

Mortgage rates jumped this week after inflation soared to a new 40-year high, according to Freddie Mac.  (iStock)

Mortgage rates jumped this week after historic inflation numbers indicated that the Federal Reserve will likely need to take significant action to bring inflation back down, according to the latest data from Freddie Mac.

The 30-year fixed-rate mortgage increased to 5.51% for the week ending July 14, according to Freddie Mac’s Primary Mortgage Market Survey. This is up from 5.3% last week and from 2.88% last year. 

The 15-year mortgage also increased to 4.67%, up from 4.45% last week and 2.22% last year, according to the survey. And the five-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) increased to 4.35%, up from 4.19% last week and 2.47% last year. 

"Mortgage rates are volatile as economic growth slows due to fiscal and monetary drags," Freddie Mac Chief Economist Sam Khater said. "With rates the highest in over a decade, home prices at escalated levels, and inflation continuing to impact consumers, affordability remains the main obstacle to homeownership for many Americans."

One way to keep your mortgage rate low is to get quotes from multiple different lenders. You can do this on Credible and choose the one with the best mortgage rate for you.


Inflation pushes mortgage rates higher

Inflation surged in June to a new 40-year high, with the Consumer Price Index (CPI) increasing by 9.1% annually. This marks the fifth time inflation has reached that record this year, and is now at its highest point since November 1981, according to the Bureau of Labor Statistics (BLS).

And this high inflation reading is already impacting mortgage rates as the risk of an economic recession grows, according to one expert. 

"The pace of runaway inflation is pushing mortgage rates higher and presenting a growing risk to the economy," George Ratiu, Realtor.com's manager of economic research, said in a statement. "With inflation approaching a double-digit pace, there’s growing pressure on the Federal Reserve to take a more aggressive stance in its monetary tightening."

Even before June’s inflation numbers came out, the Federal Reserve was expected to raise interest rates again. It recently released the minutes from its June meeting, showing that another 75-basis point rate hike could be on the table at its next Federal Open Market Committee (FOMC) meeting in July.

But now, an even higher hike could be possible. 

"While a 75 basis point hike is all-but-baked-in at its meeting in two weeks, it’s becoming clear that markets expect a move closer to 100 basis points," Ratiu said. "The real concern is that at this pace, rising prices will push consumers up against a financial wall, leading to a sharp pullback in spending. 

"The Fed has been walking a tightrope of gradually increasing borrowing costs while trying to avoid a knee-jerk reaction from consumers and businesses," he continued. "However, with inflation soaring, the runway for a soft landing is shrinking considerably, as are the chances of avoiding a recession."

If you want to take advantage of interest rates before they likely move higher, you could consider refinancing your mortgage to reduce your monthly payment. Visit Credible to compare multiple lenders at once and choose the one with the best interest rate for you.


What this means for homeowners and homebuyers

Rising mortgage rates are directly affecting homebuyers through higher monthly mortgage payments. For example, a homebuyer who purchases a median-priced home with today’s home prices and interest rates would pay about $2,000 per month, according to Realtor.com. This is up significantly from $1,300 last year. 

"Many homebuyers are finding that their budgets are no longer sufficient to purchase a home and are hitting ‘pause’ on their search," Ratiu said.

However, there are benefits to today’s housing market for homeowners. Selling a home today can yield much higher profits.

"Many homeowners are rushing to capitalize on record-high prices, bringing homes to market and boosting the supply pipeline," Ratiu said. 

Another way to capitalize on higher home prices is through a cash-out refinance. While mortgage rates may be trending higher, an interest rate for a cash-out refinance is significantly lower than that of a personal loan. To see if this is the right option for you, contact Credible to speak to a home loan expert and get all of your questions answered.

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