Mortgage rates ended July precisely where they started, a perfect metaphor for an enduring sluggish housing market.
The average 30-year, fixed-rate mortgage crept up the last week of July as the Federal Reserve delivered on its intentions to resume interest rate hikes at its most recent meeting, raising its policy rate to the 5.25% to 5.5% range.
Mortgage rates continue to rise in August. For the week ending August 17, the average 30-year fixed-rate mortgage passed the 7% mark, reaching 7.09%, up 13 basis points from the week’s previous rate of 6.96%, according to Freddie Mac. A basis point is one-hundredth of one percentage point.
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Mortgage Rate Forecast For 2023
Robin Rothstein
Forbes Advisor Staff
Chris Jennings
Editor
Reviewed By
Updated: Aug 22, 2023,
Mortgage rates ended July precisely where they started, a perfect metaphor for an enduring sluggish housing market.
The average 30-year, fixed-rate mortgage crept up the last week of July as the Federal Reserve delivered on its intentions to resume interest rate hikes at its most recent meeting, raising its policy rate to the 5.25% to 5.5% range.
Mortgage rates continue to rise in August. For the week ending August 17, the average 30-year fixed-rate mortgage passed the 7% mark, reaching 7.09%, up 13 basis points from the week’s previous rate of 6.96%, according to Freddie Mac. A basis point is one-hundredth of one percentage point.
Though housing market watchers expect mortgage rates to remain elevated amid ongoing economic uncertainty and the Federal Reserve’s rate-hiking war on inflation, they believe rates peaked last fall and will decline—to some degree—later this year as long as inflation continues to cool.
Mortgages Can’t Catch a Break as Fed Raises Rates Again and Signals More Tightening
Rates for home loans remain caught in the ongoing battle between still-high inflation and the Federal Reserve’s campaign to rein it in, which has played a role in driving long-term mortgage rates higher, consequently hampering the housing market.
Though the July 2023 inflation reading stands at 3.2%—after spiking to 8.5% in July 2022—the rate remains above the Fed’s 2% target.
To determine monetary policy, the Fed will continue to consider “a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments,” according to a press statement.
At their July meeting, Fed officials lifted the central bank’s benchmark federal funds rate—the borrowing rate for commercial banks and credit unions—by 25 basis points to a 5.25% to 5.5% range. The Fed’s rapidly-paced rate hikes began in March 2022—when borrowing rates were nearly zero—until voting to pause in June after 10 consecutive increases. With this latest increase, the federal funds rate sits at a 22-year high.
In June, the Fed revised the 2023 peak rate projection up to 5.6% from the 5.1% target policymakers projected in March. The new projection implies one more rate hike before the end of 2023 if the Fed proceeds with quarter-point increases.
The indirect impact of more Fed rate hikes this year portends further increases to the average 30-year, fixed-rate mortgage—which has been stuck above 6.5% since May, and nearly hit 7% in early August.
Federal Reserve Chair Jerome Powell acknowledged that the Fed’s tightening policies have hampered the housing market.
“Although activity in the housing market has picked up somewhat, it remains well below levels of a year ago, largely reflecting higher mortgage rates,” Powell said in prepared remarks at the post-meeting press conference. “We have been seeing the effects of our policy tightening on demand in the most interest-rate sensitive sectors of the economy, particularly housing and investments.”
Even so, Powell stated the economy has yet to feel the full impact of the Fed’s actions and that the committee’s efforts to wrestle inflation down to its 2% target still had “a long way to go.”
As far as the Fed’s next meeting and whether it will raise rates again or pause, policymakers will continue to monitor the implications of the data regarding the economic outlook to determine the stance of their monetary policy, according to the statement. The Fed’s next two-day meeting will be September 19-20.
Despite the market widely expecting the rate increase, some housing experts denounced the Fed’s hawkish approach.
“The Fed, unfortunately, is still using language based on the lagging indicators of ‘robust’ jobs and ‘elevated’ inflation,” said Lawrence Yun, chief economist at the National Association of Realtors, in an emailed statement. “All the while, because of higher interest rates, home sales have fallen, businesses are cutting back on investments and community banks are under stress.”
