Big Fed Rate Hike To Curb Inflation

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For the third time this year, the Federal Reserve hiked their Fed Funds Rate. This time by 0.75%. The benchmark rate is now at 1.75%.

This is the first time in 28 years that the Federal Reserve has raised their rate by 0.75%. The last time they did this was the tech boom. Showing that inflation is out of control.

The Russian invasion of Ukraine has exacerbated inflation at the grocery store, where food costs are at a 40-year high. At the pumps, the conflict has driven average Orange County gas prices to $6.44 for regular. Lingering pandemic-related supply constraints continue to cause sticker shock for cars. And there is still a nationwide housing shortage causing home prices to skyrocket in many different markets.

Federal Reserve Chairman Jerome Powell says the Fed is committed to bringing inflation down. The labor market is extremely tight. Ongoing increases to the Fed Funds Rate are to come soon – even as early as their next meeting in July.

The Federal Reserve is trying to curb the inflation problem and that goes hand in hand with housing. They plan to hike rates for adjustable-rate mortgages but it is not clear how they will take the 30-year fixed rate mortgages.

Today, the average 30-year fixed rate shot up to 6.29%. Back this time last year, the average rate was 3%. This is causing many homebuyers to be priced out of the market.  This week, the 10yr yield topped at 3.45%, highest in 11 years.

With less demand, more home sellers are dropping their asking prices and the real estate industry itself is starting to feel the effects. Sellers may start getting 2 offers instead of 10. This is causing many big name brokerages to make major layoffs – such as Redfin and Compass. Even big banks are laying people off like Wells Fargo and Mr. Cooper.

There any many factors impacting our economy and the housing market. If you or anyone you know is looking for guidance during these turbulent times, reach out to us today.