The Chicago Journal

Mortgage rates to stay neutral if Feds hike rates this week

Mortgage rates: The Federal Reserve is expected to raise rates further this week, but mortgage rates are expected to remain unchanged.

Mortgage rates have had several ups and downs this year but peaked at 7% for weeks in October and November.

However, signs of slowing inflation pushed mortgage rates down.

According to a Bankrate survey (owned by Red Ventures alongside NextAdvisor), the average 30-year fixed-rate mortgage is down to 6.62%.


JR Gondeck, financial advisory partner and managing director of Lerner Group, is optimistic about the interest rates.

“From a mortgage perspective, rates have actually gone down even though the Fed has raised rates. We would expect the worst is over,” said Gondeck.

“We think you’re going to see lower rates into the next year despite further rate hikes.”

Meanwhile, experts and financial markets expect the US Federal Reserve to raise its benchmark short-term interest rate (the federal funds rate) by 50 basis points this week.

However, experts also say the next steps for mortgage rates depend more on Fed Chairman Jerome Powell’s 2023 projection.

Odeta Kushi, the American Financial Corporation deputy chief economist, suggested it’s all about expectations.

“If the market is surprised by the Fed’s projections, we could see some movement in mortgage rates,” said Kushi.

“Whether that surprise is to the upside or the downside.”

The Fed

Housing costs are already a significant component of consumer spending.

The housing market was a critical indicator of the Fed’s continued efforts to contain inflation, standing at 7.7% year-over-year in October.

Since early 2022, the Fed has raised the federal funds rate from 0% to 3.75%, one of the central bank’s fastest rate hikes.

The hikes were an attempt to curb ongoing inflation.

Denis Poljak, the co-founder of Poljak Group Wealth Management, provided a unique perspective on inflation, saying:

“Inflation is, essentially, too much money chasing, too few foods.”

The Federal Reserve is making it harder to borrow money by raising interest rates.

Additionally, they said they will continue to increase rates until they see continued declines in consumer spending and inflation.

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Housing market

The current inflationary climate did not occur overnight.

It has gained momentum since the outbreak of the 2020 pandemic, of which the real estate market is a clear example.

The pandemic boom in the housing market led to massive price hikes, with demand failing to meet supply.

The rise in house prices continued until they peaked in the middle of the year.

Since then, prices have slowly declined as high mortgage rates have curbed demand. Also, the housing market has been in neutral territory lately.

However, falling home prices and stabilizing mortgage rates may make affordability difficult, especially for first-time buyers.

The Fed & mortgage rates

Mortgage rates are not directly tied to Federal Reserve actions but are affected by inflation.

When people take out a mortgage, it is sold to investors in the bond market as part of a pool of mortgages called mortgage-backed securities.

Inflation and rising borrowing costs have prompted lenders to increase mortgage rates to give investors higher yielding mortgage-backed securities.

When inflation eased in October, mortgage rates fell, and the bond market rallied.

The housing market represents an important sector of consumer spending.

If the Fed slows housing cost growth, it will likely substantially affect the economy.

“As long as new lease inflation keeps falling, we would expect housing service inflation to keep falling sometime next year,” said Jerome Powell.

“Indeed, a decline in this inflation underlies most forecasts of declining inflation.”

The Fed’s pace

The Federal Reserve has consistently maintained rate hikes through its December meeting.

The Fed aggressively hiked rates by 75 basis points after four consecutive meetings.

“And the reality is, it’s working,” said JR Gondeck. “They started late, but they’re catching up to where things are.”

Despite the progress, the Fed must find a balance between being aggressive and going too far too fast.

The decision to raise rates by 50 basis points instead of 75 suggests the Fed is hoping for a soft landing instead of an outright recession.

“This way, Powell can continue with his agenda to slow the economy down but help create a softer landing, a more moderate recessionary environment,” says Poljak.

The Fed should observe incoming data on housing inflation for a soft landing or a moderate recession.

“The housing market is the leading indicator of a recession,” says Odeta Kushi.

“But traditionally, it has also aided the economy in recovering from one.”

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The Federal Reserve will adjust interest rates and make forecasts for 2023 at its December meeting.

The latest inflation report shows a positive sign, but the Fed needs more to curb rate hikes.

Additionally, the Fed has indicated that it is cautious about easing interest rate hikes until there are indications that inflation has been around or below the Fed Funds rate for several quarters.

However, further hikes may not lead to drastic mortgage rate changes.

Indications of easing inflation should stabilize mortgage rates at lower levels.

“I think the rate hike is pretty much already priced into the market. The Fed is going to raise their short-term rate by half a percent,” said Gondeck.

“But from there, it’s going to matter more what they say about the future, and specifically, the tone they use.”


‘The worst is over’ for mortgage rates despite another looming Fed hike, experts say