Fed rate hike or pause?

• The average for a 30-year fixed rate mortgage was 7.29% as of September 15. That’s up 0.07 points from the previous week.
• The Federal Reserve is expected to hold the federal funds rate steady this week, which could cool mortgage rates slightly.
• The median monthly mortgage payment in the U.S. is at an all-time high. 

Mortgage rates ticked up slightly last week, though there wasn’t much meaningful change: The average for a 30-year fixed-rate mortgage was 7.29%, according to Mortgage News Daily. 

And there won’t likely be much change until the Federal Reserve announces its next rate decision on Wednesday. Analysts expect the Fed to pause for now — but they also predict at least one more rate hike before year’s end.

Inflation was up 3.7% in August over 2022 — the second month in a row that it increased after several months of more encouraging data. The Fed’s goal is to bring inflation down to 2%. Jobless claims last week were also at their lowest since February, another sign that the economy is still chugging along at a healthy pace. 

A pause in rate hikes — even if it’s just for one meeting — could provide some relief to borrowers, as interest rates on any type of borrowing, including mortgage loans, tend to track the federal funds rate.

Indeed, the Mortgage Bankers Association expects the average for a 30-year fixed-rate mortgage to fall to 6.2% by the end of the year, while Fannie Mae expects them to dip only slightly to 6.7%.

For now, the average 15-year fixed-rate mortgage stands at 6.64%, according to Mortgage News Daily. The average for a jumbo mortgage is 7.34%, while the average for a 5/1 ARM is 7.09%. 

In recent weeks, mortgage rates reached 22 year highs — more than double what they were during the pandemic housing boom. Mortgage rates closely track the 10-year Treasury yield, which goes up with the federal funds rate. Some economists, however, have noticed a concerning trend recently in the spread between the 30-year mortgage rate and the 10-year Treasury yield. Right now there’s a spread of slightly less than 300 basis points between the two — a larger than normal spread. High spreads tend to precede or accompany crises, such as the Great Recession.  

However, analysts think it’s less and less likely that the U.S. will face a recession — at least this year. Goldman Sachs, for one, released a new forecast two weeks ago that put the odds of a recession at 15% in 2023 — five points lower than its previous prediction. Some analysts instead expect a recession in 2024.

The median monthly mortgage payment reached a record high during the four weeks ending September 10, according to Redfin: The average borrower must shell out $2,632 a month to pay for their home.

Two factors have torpedoed affordability over the past year: sky-high mortgage rates and rising home prices. But both are deeply intertwined. There’s historically low inventory right now, since many homeowners don’t want to take on a staggeringly high mortgage rate. 

Lawrence Yun, chief economist with the National Association of Realtors, offered two scenarios for where the market could head next. “One future scenario is some calming in the economy and inflation,” he said. “That will lead to modestly lower mortgage rates and more buyers will come to the market.”

The other factor that could shake up the housing market is a recession, he said. “Those who lose jobs may be forced to sell their homes,” he said. “Moreover, those uncertain about their jobs will not have the confidence to buy a home. However, a recession means much lower interest rates. And those with stable jobs – around 70% to 80% of workers – will want to take advantage of low interest rates.” All this to say: A recession, paradoxically, could help jumpstart the housing market.

Some people can’t wait that long. If you find yourself needing to move now, real estate pros have an adage for you: “marry the house, date the rate.” Translation: If you see your dream home now, you don’t necessarily have to walk away just because mortgage rates are high. You can always refinance once rates drop. 

Just a three-quarter point decline is enough to make refinancing worth it (which means this week’s 0.31 decline puts some recent mortgages almost half-way there). And, as you look for the best possible rate right now, make sure you compare offers among multiple lenders. Just getting quotes from four lenders can save you up to $1,200 every year on your mortgage, according to a study by Freddie Mac. 

On average, the interest rate for a 30-year mortgage on September 15 was 7.29%, up from 7.22% on September 8. 

On average, the interest rate for a 15-year mortgage on September 15 was 6.64%, up from 6.59% on September 8. 

On average, the interest rate for a 30-year fixed rate jumbo mortgage on September 15 was 7.34%, up from 7.30% on September 8. 

On average, the interest rate for a 5/1 ARM on September 15 was 7.09%, up from 7.05% on September 8.

Mortgage rates are influenced by a variety of factors, including:

• Your credit score
• Down payment
• Your debt-to-income ratio (DTI)
• The type of loan you’re getting
• Loan term
• Interest rate type (fixed vs. adjustable)
• Inflation and the overall economy
• The Federal Reserve (which doesn’t set mortgage rates, but it certainly influences them)

If you’re currently shopping for a mortgage or considering refinancing, you’ve probably wondered why the quoted interest rate isn’t the same as the APR. That’s because the loan’s interest rate is what you pay the lender to borrow the money, while the APR (annual percentage rate) encompasses both the interest rate and all loan-related fees. Loan-related fees can include:

• Mortgage broker fees
• Loan origination fees
• Mortgage insurance premiums
• Some closing costs

The APR, therefore, is a truer measure of what it will actually cost you to borrow money to buy a home.

Editorial Disclosure: All articles are prepared by editorial staff and contributors. Opinions expressed therein are solely those of the editorial team and have not been reviewed or approved by any advertiser. The information, including rates and fees, presented in this article is accurate as of the date of the publish. Check the lender’s website for the most current information.

This article was originally published on SFGate.com and reviewed by Lauren Williamson, who serves as the Home and Financial Services Editor for the Hearst E-Commerce team. Email her at [email protected].