A rate hike, a brief rate dip and what they mean for homebuyers

Everyone knew it was coming. The question is, will the Federal Reserve's latest 75 basis point hike to the federal funds rate have enough of an impact to slow inflation and subsequently ease up the Fed's quantitative tightening (QT) agenda? 

The Fed has remained generally hawkish in its approach to fighting inflation, but has started to drop hints about what it will take to slow the pace of rate hikes. In its new statement, the Fed reported it "will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments."

This does not mean the Fed will reduce the federal funds rate any time soon, but could potentially institute smaller increases of maybe 50 basis points in December and smaller hikes throughout portions of 2023. Fed Chair Jerome Powell in his post-meeting speech said, "​"We still have some ways to go and incoming data since our last meeting suggests that the ultimate level of interest rates will be higher than previously expected." 

Beyond the prices of goods, the Fed also looks at the labor situation to determine if its rate hikes are having the desired effect without too drastically slowing the economy. The October Jobs Report from the Labor Department showed 261,000 jobs were added in October with the unemployment rate moving slightly higher to 3.7%. More importantly, wage growth came in at 4.7% higher than a year ago and 0.4% higher month-over-month. That's an indication to the Fed that inflation will still run hot and give added incentive to continue in a QT cycle.

THE FED'S HIKES AND HOUSING

The rate hike in the first week of November was the Fed's fourth consecutive 75 basis point increase to the overnight lending rate, bringing rates to their highest since 2008. And it's expected that this will further slow growth for the housing industry. 

Remember, this is not the rate you pay for mortgages, but this action does have an indirect effect on your home loan. Stocks initially rose after the announcement, but dropped steeply as Powell spoke on the future plans for rate increases. 

The yield on the 10-year Treasury note followed suit, dipping after Powell's press conference. Typically, mortgage rates follow the trajectory of the 10-year note and it has been especially volatile over the last 7 to 10 days. The day after the Fed's announcement, the yield on the 10-year nearly hit 4.2%. But in the days leading up to the announcement, the yield was holding around 3.90-3.92%. These brief dips are one of the things your Movement Mortgage loan officers are looking for as windows for potential rate locks that could help you get a better rate on your home loan.   

As every homebuyer knows, every point matters right now when it comes to locking in a solid rate. Freddie Mac's latest 30-year fixed-rate mortgage average was 6.95%—a touch lower than the previous week which coincides with the dip in 10-year Treasury note yields. 

"Mortgage rates continue to hover around seven percent, as the dynamics of a once-hot housing market have faded considerably," noted Freddie Mac analysts in the survey. "Unsure buyers navigating an unpredictable landscape keeps demand declining while other potential buyers remain sidelined from an affordability standpoint."