Mortgage rates on the up

With the Fed meeting in May, analysts will be keeping a close eye on mortgage approval rates. 

Agreement in principle 

Inflation in the US is at a 40-year high. And as prices head skyward, the government is turning to the Fed to raise interest rates and cool down the economy. Potentially good news for prices, but terrible news if you were paying off a mortgage or hoping to get one.  

Interest rises mean that homeowners will need to pay back more. And if the higher repayments put houses out of the reach of average Joes, that means we could see the mortgage market slowing down. 

Slowing things down 

There are some signs of this already happening, with some of the biggest retailing banks in the world recording double-digit losses in Q1. From Citigroup to Wells Fargo, a slowdown in the mortgage market is starting to drag on profits. “Rising rates drove a significant slowdown in mortgage banking, especially refinance activity,” said Kyle Sanders, an analyst with Edward Jones. 

The slowdown is far from ideal, but it’s also not quite the worst-case scenario. First American Chief Economist, Mark Fleming, recently pointed out that while rising rates will impact affordability, the average 3-year, fixed-rate mortgage “is still well below the historical average of nearly 8%”.  

But could we be testing these limits soon? The Fed has been signaling for a while to expect potentially drastic rate hikes. And with the next meeting slated for May, a more significant hike could start pushing those mortgage rates real fast.