Mortgage rates touch 4-month high as Fed weighs rate options

Mortgage rates have climbed to a four-month high, surpassing the 7% threshold. As the Federal Reserve maintains a higher-for-longer interest rate stance with inflation data suggesting no imminent easing, Yahoo Finance Fed Reporter Jennifer Schonberger dissects the ramifications for the housing market.

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This post was written by Angel Smith

Video Transcript

BRAD SMITH: Mortgage rates hitting a four month high this week at over a 7% interest rate. Buying a home may just be too expensive. Well, you could think the Fed partially for that to break down what the Fed's higher for longer policy means for you. Yahoo Finance reporter, Jennifer Schonberger is here with us. Hey, Jennifer.

JENNIFER SCHONBERGER: Hey, Brad. Stronger than expected inflation data is pushing the Federal Reserve to hold interest rates at current levels for longer. A shift expected to keep borrowing costs higher on everything from homes to cars.

GREG MCBRIDE: It's going to continue to be a tough slog paying down debt. It's like pedaling into a really stiff headwind that 20% plus credit card rate, it's going to stay at 20% plus.

JENNIFER SCHONBERGER: If you're in the market for a home, it's getting expensive. Mortgage rates are already headed up on expectations. The Fed won't cut rates anytime soon. The Fed's policy rate has stood in the range of 5 and 1/4% to 5.5% since last July. But mortgage rates tracked the 10 year Treasury yield, which bond traders have bid up to the highest levels this year 4.6% in anticipation of the Fed holding rates higher for longer. The 30 year fixed rate mortgage pushed above 7% this week for the first time this year.

That's up from 6.88% last week extending America's home affordability crisis. A year ago, the average 30 year fixed rate mortgage stood at 6.39%. If inflation stalls any further or even worsens mortgage rates could head higher. But if inflation continues, its slow course down. Mortgage rates may be near their highs.

GREG MCBRIDE: The greater likelihood is that the Fed holds interest rates, steady and that inflation just proves to be stubborn and coming down. In that case, we don't have to necessarily worry about mortgage rates. Blowing off and going back above 8% like we had seen last fall. However, if inflation picks up and if that is sustained for any length of time. Then that becomes a greater likelihood. Those long term rates are really a reflection of where interest rates are expected to be from here to there.

The silver lining higher sustained yields on savings mean higher interest income. So a low risk way to get a good return on your savings or money market funds.