Will mortgage rates go up after the May Fed meeting?

Will mortgage rates really keep rising?

Rapid interest rate growth will likely follow the Federal Reserve’s next Open Market Committee meeting on May 3 and 4.

As inflation stands at 40-year highs, the central bank will pull the levers at its disposal to combat it and keep interest rates reflective of the swelling economy.

We’ve already seen mortgage rates expand at a historic pace so far in 2022 and that could be an ongoing theme for the year.

For any borrowers on the fence about locking in a rate — whether to buy a house or refinance — the time to make a move is now.

Higher rates likely to come

The average 30-year fixed mortgage rate increased in each of the last seven weeks, according to Freddie Mac. We could be in for more of the same as the Fed changes its policies to get inflation under control.

Most industry experts expected interest rates to rise following the May FOMC meeting, but by how much was up for debate. However, Fed Reserve Chairman Jerome Powell said in a panel discussion last week that a hike of “50 basis points will be on the table” for the federal funds rate.

It’s hard to say exactly how much mortgage interest rates may grow with a hike of that size, or possibly an even bigger one. For context, the average 30-year FRM surged 87 basis points in the four weeks following the March FOMC announcement of a 25-point fed funds hike.

Whatever the change ends up being, it’s reasonable to believe interest rates won’t be lower than they are today anytime soon.

The Fed’s role

Technically, the Federal Reserve doesn’t determine mortgage rates. Instead, rates are intrinsically tied to Fed actions.

At its previous meeting in March, the Fed announced plans to hike its federal funds rate at each of the six upcoming 2022 meetings. The fed funds rate is the amount banks pay to borrow money from each other overnight and an increase signals higher inflation and economic expansion.

Mortgage rates typically rise in response to growth in the fed fund rate.

Advice for borrowers

With the exception of a few uncertain weeks following the Russian invasion of Ukraine causing small drops, interest rates soared throughout 2022.

While these rocketing rates haven’t been kind to borrowers, locking one in soon will likely be more financially prudent than months from now. Even a rate above 5% is low historically and over 1.3 million borrowers would still benefit from a refinance.

“Rising mortgage rates impact affordability, but historical context is important. An average 30-year, fixed mortgage rate of 5.5% is still well below the historical average of nearly 8%. Even with mortgage rates at 5.5%, house-buying power is over $360,000, which is still strong and at the same level as 2018,” said First American chief economist Mark Fleming.

If you’re ready, speak to a local lender or mortgage professional to see what rate you can qualify for.