The Fed’s next interest rate hike “could be the biggest in decades.” So we asked 6 real estate professionals: what could this have on mortgage rates?

What could happen to mortgage rates soon?

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The Federal Reserve is rumored to raise rates by 1% at its July 26 meeting as it tries to contain inflation which is currently at its highest level in 40 years. Barron’s recently noted that: “With inflation so high, the Fed’s next rate hike could be the biggest in decades,” and many other sources – from CNBC to CBS News – are speculating about a rate hike from 1% at the meeting. If the Fed raises rates, what could that mean for mortgage rates? (See the lowest mortgage rates you can get now here.) We asked six pros what they think.

The first thing to note is that the Federal Reserve does not set mortgage rates and there is no direct relationship between central bank moves and what happens with mortgage rates. But, “mortgage lenders are often said to factor upcoming Fed rate hikes into the mortgage rates they offer before the Fed even makes an announcement,” says Jacob Channel, senior economist at LendingTree. “Because inflation is as high as it is and economic uncertainty appears to be rising for both consumers and businesses, some lenders may feel compelled to raise rates,” Channel said. That means rates could actually stay roughly at their current level, even if the Fed announces a bigger-than-expected hike, he says.

But if rates rise, Channel doesn’t expect them to rise above 6%; and he adds that even if they climb after the next announcement, he says they might fall back soon after. “That’s what happened after last month’s 75 basis point rise, when mortgage rates jumped 50 basis points to 5.78% before finally falling back to their current levels of around 5. .51%,” says Channel. (See the lowest mortgage rates you can get now here.)

For his part, Greg McBride, chief financial analyst at Bankrate, says: “The prospect of the Fed rushing interest rate hikes and making them sooner rather than later may actually help maintain a ceiling on mortgage rates or even lower them. .” In fact, more rate hikes now mean fewer rate hikes later, which means the timing of peak interest rates is advanced and the eventual rate cut due to a weak economy is also happening sooner. , he notes. “But it all depends, and even assumes, that inflation peaks very soon. Otherwise, all bets are off,” McBride says.

Sean Roberts, chief operating officer of home-selling startup Orchard, says a 1% hike is unlikely to have a major impact on short-term mortgage rates. “Mortgage rates are much more correlated to the 10-year US Treasury yield, which is determined by market forces and not determined by the Fed’s key rate,” Roberts says. (See the lowest mortgage rates you can get now here.)

But for his part, Holden Lewis, mortgage and housing expert at NerdWallet, says that while the immediate result could be mortgage rates rising by a quarter of a percentage point or less, after digesting the news, investors could conclude that the Fed is putting the economy at high risk of recession. “The fear of recession could actually drive mortgage rates down and the trajectory of mortgage rates depends not only on whether the central bank raises the fed funds rate, but also on the words it uses to explain the action. “, says Lewis.

Mortgage rates are heavily weighted by future expectations of what will happen, so an increase of this magnitude by the Fed is already priced into the market, says Cameron Findlay, chief economist for AmeriSave Mortgage Corp. Because the market has already priced in that increase in mortgage rates, and it stands to reason that mortgage rates could actually fall if the Fed doesn’t raise the full 1%, Findlay says, “Be careful when selecting your lender how long it will take to close your loan. Time spent in a volatile market is critical and can add thousands of dollars to the cost of your loan if you’re not careful.

“If the Fed raises rates by 1% and projects confidence that future rate hikes will occur to continue fighting inflation, mortgage rates are likely to rise only moderately, if at all, from their current level,” says Eileen Derks, head of mortgages at Route des Lauriers.

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