The Federal Reserve raised its key rate by three-quarters of a point this week in an effort to tame high inflation, resulting in the largest one-week increase in 35 years in average long-term US mortgage rates.
According to Freddie Mac, the 30-year mortgage rate rose from 5.23 percent last week to 5.78 percent this week, the highest level since November 2008 during the housing crisis.
The Fed’s rate hike on Wednesday was its largest in a single action since 1994.
Potential homebuyers have been priced out of the market as interest rates have risen sharply in tandem with home prices.
According to the Mortgage Bankers Association, mortgage applications are down more than 15% from last year, and refinancings are down more than 70%.
These figures are likely to worsen, with more Fed rate hikes on the horizon.
The Fed’s unusually large rate hike came after data released last week showed that US inflation reached a four-decade high of 8.6 percent last month.
The Federal Reserve’s benchmark short-term rate, which affects many consumer and business loans, will now be pegged to a range of 1.5% to 1.75 %, with Fed policymakers forecasting a doubling of that range by the end of the year.
Higher borrowing costs appear to be slowing the housing market, which is an important part of the economy.
Sales of previously occupied US homes fell for the third month in a row in April as mortgage rates rose, increasing borrowing costs for would-be buyers as home prices rose.
Under pressure from the cooling housing market, online real estate broker Redfin announced on Tuesday that it was laying off 8% of its workforce.
Homeownership has recently become more difficult, particularly for first-time buyers. Aside from staggering inflation, rising mortgage rates, and skyrocketing home prices, the supply of available homes for sale remains limited.
The average rate on 15-year fixed-rate mortgages, which are popular among homeowners refinancing, increased to 4.81 percent from 4.38 percent.