Fed’s 75 basis point rate hike means millions more homebuyers will be squeezed out of the housing market: ‘Desperate times call for desperate measures’

Shame on first-time home buyers.

On Wednesday, the US Federal Reserve raised interest rates by 75 basis points to a range of 1.5% to 1.75%, the largest hike since 1994, as it tries to tame rising inflation, which is hitting a 40-year high Has.

Eric Finnigan, Director at John Burns Real Estate Consulting, wrote on Twitter
that mortgage rates rising to 6% from 3% earlier this year effectively exclude 18 million households from qualifying for a $400,000 mortgage.

On a $400,000 loan, a 30-year fixed-rate mortgage at a 3% interest rate would cost homebuyers about $1,686 a month, not including taxes and other fees. That equates to a total of $607,110 with interest of $207,110).

Compare that to current interest rates: At 6%, the same mortgage would cost about $2,398 per month (a total of $863,353 with $463,353 in interest), a 42% increase in total monthly payments at the lower interest rate.

“The old adage ‘desperate times call for desperate action’ seems to have come into play with this latest rate move,” said Mark Hamrick, senior economic analyst at, in response to the Fed’s 75 basis point hike.

“The cost of borrowing is becoming increasingly expensive, especially for those with adjustable rate products,” he said. Conversely, those who settled at a 30-year rate last year at more than half the current rate will breathe a sigh of relief.

According to a recent survey of 900 real estate agents by real estate tech startup HomeLight, about half of buyers are pausing their plans to buy a home, choosing to wait six to 12 months before resuming the process.

“The Fed faced another difficult decision.”

— Ben McLaughlin, President of online savings platform

That feeling shows elsewhere. The Market Composite Index, a measure of the volume of mortgage loan applications, fell to its lowest level in 22 years, the Mortgage Bankers Association (MBA) said earlier this month.

Redfin RDFN,
CEO Glenn Kelman wrote in a blog entry on Tuesday, urging 8% of that company’s employees to leave: “With May’s demand falling 17% below expectations, we don’t have enough work for our agents and support staff.”

He said the company is having to lay off staff because “mortgage rates have risen faster than at any time in history. We could be looking at years instead of months with fewer home sales, and Redfin still plans to be successful.”

Analysts were not surprised by the Fed’s move. Ben McLaughlin, president of online savings platform, said it is meeting expectations with the third straight increase in the Fed Funds target rate since March 2022.

The Fed faces a difficult balancing act: reining in rapid inflation — which was 8.6% through May of the year, according to the CPI — without turning gross domestic product growth into negative territory.

“The Fed faced another tough decision,” McLaughlin said, adding that “markets have been shaken lately, so the Fed has to walk a narrow path to avoid a shock so big that it risks losing the.” plunge the US economy into recession.” Fed’s 75 basis point rate hike means millions more homebuyers will be squeezed out of the housing market: ‘Desperate times call for desperate measures’

Brian Lowry

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