SEAL BEACH, Calif. — “Could mortgage rates reach 10%?” wonders Abby Ronquillo, the founder and CEO of NetRealty, a real estate brokerage in Corona.
The Federal Reserve’s recent jumbo rate hike has many real estate agents wondering how much higher mortgage rates could rise.
The Fed doesn’t set mortgage rates, but its decisions indirectly affect them.
Each time the Fed has raised interest rates, beginning in March, mortgage rates soon followed.
In the weeks before the central bank’s first rate hike on March 17, the average 30-year fixed-rate mortgage was at 3.76%, according to Freddie Mac.
On March 17, when the Fed raised rates by 25 basis points, the average mortgage rate jumped to 4.16%. By mid-April, the average 30-year fixed rate hit 5%.
“Yesterday’s interest rate hike by the Federal Reserve will certainly inject additional lead into the heels of the housing market,” said Freddie Mac officials in their monthly primary mortgage market survey.
As of Nov. 3, Freddie Mac’s weekly mortgage survey reported that the average 30-year fixed-rate mortgage was 6.95%. Mortgage News Daily’s daily rate had 30-year fixed mortgages at 7.3%.
The Fed on Wednesday, for the fourth straight time, raised interest rates 75 basis points as part of its ongoing fight against stubborn inflation, which continues to be at an all-time high.
It’s the central bank’s sixth time this year raising rates. And it’s not over yet. Though not as drastic, the committee said they plan to lower the rate hikes in subsequent meetings.
Still, many real estate agents see the latest hike as another nail in the housing market coffin as dark clouds of a possible recession loom.
After an unprecedented two-year home-buying frenzy fueled by historically low mortgage rates, work-from-home policies and other pandemic-related factors, the real estate market has slowed to a crawl.
Many real estate agents and experts expect mortgage rates to follow the Fed’s hike and increase in the coming days or weeks.
“With these new interest rates, it’s essentially pricing out first-time homebuyers,” said Odest Riley Jr., the CEO of WLM Financial in Inglewood. “Because house prices are so high and mortgage rates are so high, it’s basically impossible for a regular working-class person to afford a home.”
He said that the Fed’s recent rate hike further exacerbates the issue.
Teresa McCarthy, an associate broker at Compass Long Beach, said sellers need to be realistic and lower their home prices.
“Buyers should get ready for lower prices,” said McCarthy. “Despite rate hikes, it’s always a good time to buy real estate as they can always refinance later.”
For Ronquillo, the recent Fed hike is “frustrating.”
She said she has 10 buyers lined up — all waiting on the sidelines.
“They’re waiting for rates to drop or prices to drop,” said Ronquillo.
She doesn’t know how much higher mortgage rates could rise. She wonders if mortgage rates could hit 10% — a rate not seen since November 1990.
It’s a far-fetched number, maybe not likely, but also not impossible.
Ronquillo is now steering buyers to use adjustable-rate mortgages if they need to buy a home.
“The economy is still performing well. People are still working,” she said. “I know there’s a recession coming, but it’s going to be a short-lived one.”
