Latest Fed rate hike met with groans from the industry

The decision by the Federal Open Market Committee to boost short-term rates by 75 basis points for the third meeting in a row will drive up the cost of housing and likely not adequately reduce inflation, the National Housing Coalition declared.

"Housing supply deficits, made worse by increased interest rates, are likely to blunt the anti-inflationary impact of the Fed's rate hike as the housing supply continues to shrink, offsetting the impact of interest rate-driven reductions in demand," David Dworkin, president and CEO of the NHC, said in a statement.

The increase met the expectations of many observers, including Fannie Mae Chief Economist Doug Duncan, but it did disappoint a small pocket that wanted the FOMC to boost the Fed Funds Rate by a full percentage point.

But this might not be the end of hikes, as the FOMC indicated likely ongoing increases which could bring that rate to 4.4% by year-end.

"While the Fed is aware of the housing market deceleration and the housing market's multiplier effect on the economy, that recognition is not likely enough to deter the Fed from further monetary tightening," Odeta Kushi, deputy chief economist at First American, said in a statement. "Higher frequency housing market indicators, such as mortgage applications, clearly indicate the housing market is cooling, commonly cited inflation measures have not."

The median home price was $439,400 at the end of July, compared with $328,200 for March 2020, according to Census Bureau data Dworkin cited.

"As a result, the annual income necessary to buy a home has nearly doubled from $64,400 to $120,000," he continued. "It is safe to say that no one making under $100,000 has received a $50,000 salary increase over the past two years."

Housing, more specifically the lack of properties for sale, is the main reason why inflation is not under control right now.

"There is no way to solve inflation without addressing housing supply," Dworkin said. "The law of supply and demand cannot be repealed."

He called on Congress to pass the Affordable Housing Credit Improvement Act and the Neighborhood Homes Investment Act, but neither bill has moved forward in either chamber.

The 10-year Treasury yield, a benchmark for the 30-year fixed rate mortgage, was at its peak for the day at 3.62% at 2 PM eastern time, when the FOMC announcement was released, according to Yahoo Finance.

But an hour later, the 10-year was down 11 basis points to 3.51%.

The run-off of its Treasuries and mortgage-backed securities investments will continue as planned, the FOMC statement said.

"Rate volatility is high due to both uncertainty regarding the Fed's next moves and the lack of a steady, consistent buyer for Treasuries, and particularly mortgage-backed securities," Mike Fratantoni, chief economist of the Mortgage Bankers Association, said in a statement. "Mortgage rates have jumped the past few weeks following the August inflation report, which indicated that the Fed will continue to be aggressive in combating stubbornly high inflation levels."

The mortgage market will be harder hit by the continued rate hikes than the credit card segment, said Michele Raneri, vice president of U.S. research and consulting for TransUnion.

"When interest rates rise, consumers who may otherwise be considering buying a home may instead choose to hold off in hopes that interest rates decline in the not-so-distant future," Raneri said in a statement. "And in that environment, those who do choose to buy may be more likely to select an adjustable-rate mortgage because their initial monthly payments will be lower than those they would find with a fixed rate mortgage."