CFAH

While the Fed has only hiked the target federal funds rate by 25 basis points (0.25 percentage points) from the near zero rate which had been in place since 2018, the benchmark 30-year mortgage rate has already rocketed by over 200 basis points to a 12-year high, driven by a jump in the underlying 10-year treasury rate and expectations of additional hikes by the Fed.

As we outlined two weeks ago, the probability of the Federal Reserve raising interest rates by another two (2) full percentage points by the end of the year, based on an analysis of the futures market, was up to 99 percent, which should translate into even higher mortgage rates, less purchasing power for buyers and downward pressure on home values.

And in fact, the probability of the Fed raising the federal funds rate by half a point (50 basis points) today alone, which would represent the first half-point hike in over two decades, is currently running at a near-certain 99.8 percent, with the real question being how much of the predicted hike(s) has already been priced-in to the 10-year treasury and mortgage rates. We’ll keep you posted and plugged-in.

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