Orion’s brokers know that today’s housing market is a mix of high mortgage rates, high prices, tight supply, and strong pent-up demand. The 30-year fixed mortgage rate is at 8 percent, the highest in decades, making things difficult for new home buyers, and existing homeowners who entertain thoughts of moving to a different house. We feel it is important for brokers and your clients to understand why mortgage rates, and interest rates in general, are this high and why they may be here for a while.

During the first two years of the Covid-19 pandemic, the Federal Reserve dropped the FedFunds rate (what banks charge each other for overnight funds) to zero and poured money into mortgage-backed securities. The result was record-low mortgage rates for two solid years, certainly helping the broker business. Potential sellers are “trapped” as they have little desire to trade the 3 percent rate they currently have for an 8 percent mortgage rate on a new purchase.

The Federal Reserve, and its Federal Open Market Committee made up of the Federal Reserve presidents in certain districts around the United States, does not set mortgage rates. But the same factors that influence their decision-making influence the bond market and investors, and therefore mortgage rates. Fed speakers are saying that they are restrictive and that they can wait and see what happens with the policy filtering through to the economy.

Sure enough, inflation has been slowing, and a still-strong job market is boosting consumer confidence. Fed Chairman Jerome Powell told members of the Economic Club of New York Luncheon last week that no one should expect interest rate cuts in the near future: "While the path is likely to be bumpy and take some time, my colleagues and I are united in our commitment to bringing inflation down sustainably to 2 percent… Inflation is still too high, and a few months of good data are only the beginning of what it will take to build confidence that inflationis moving down sustainably toward our goal."

Powell and other Fed presidents continued to say in speeches throughout the week that we shouldn't expect a reduction in interest rates any time soon. 98 percent of investors who bet on the movements of interest rates expect the Fed will hold interest rates steady following its next meeting on Nov. 1. Powell said, "Doing too little could allow above-target inflation to become entrenched and ultimately require monetary policy to wring more persistent inflation from the economy at a high cost to employment. Doing too much could also do unnecessary harm to the economy."

Last week we continued to see signs that the U.S. economy is not suffering. Hotter-than-expected retail sales data grabbed the headlines. The yield on the benchmark 10-year Treasury note crossed 5 percent for the first time in 16 years on Thursday, a level that could ripple through the economy in higher rates on mortgages, credit cards, auto loans, and more.

Given all of this, Orion is offering buydown and down payment assistance programs. Builders are helping with affordability by buying down interest rates for their customers. This is something they have not typically done in the past, at least not on this scale. These mortgage rates may be with us for a while, but there are products and programs that Orion can offer that will certainly help.

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