Good morning!
Last week I said Wednesday would not be about the hike itself that would impact mortgage rates. It would be about whether the bond market decided the Fed had done enough to get ahead of inflation — oil included. The Fed did hike; mortgage rates did not take off. They also did not come down. Let’s get into it!
- The Fed Hiked. Mortgage Rates Did Not Automatically Follow
- Housing: Starts Cooled, Contracts Did Not Stop
- Weekly Rate Recap and What to Expect This Week
The Fed Hiked. Mortgage Rates Did Not Automatically Follow
On Wednesday, the Fed raised the federal funds rate 0.25% to a range of 3.75% to 4.00%. It was unanimous, the first hike in three years, and the first rate change of 2026 after five straight holds. Funds rate is the overnight bank rate. It is not your 30-year fixed rate mortgage rate. HELOCs, credit cards, and other floating products feel it first. Mortgage rates live off the 10-year Treasury, inflation expectations, and the spread between Treasuries and mortgage-backed securities.
Chair Warsh said inflation “is too high and has been for too long,” and the statement said the hike would support a “timelier return” to 2%. Sixteen of the officials who submitted projections see at least one more quarter-point this year. Warsh still does not submit a projection for future rate hikes or decisions, and he again refused to pre-commit the next meeting.
Here is the grade against last week’s marker. The average 30-year fixed rate for A+ tier buyers was 7.12% the Friday before the meeting, 7.22% Tuesday, 7.24% Wednesday (hike day), 7.19% Thursday, 7.20% Friday. That is a contained week, not a panic and not a gift. The market interpreted the Fed hike as “we are serious about inflation.” The 10-year tagged 5.00% around the meeting and is hovering just under it this morning. A 5% 10-year plus a roughly 2-point mortgage spread is how you get a 7-handle conventional rate quote these days. If 5% sticks, the 7% rates also stick. If buyers show up at 5% the way they did the last time we tagged it in 2023, there is room for the 10-year to ease — which is the old line that the cure for higher rates can be higher rates.
Retail sales did not give the bond market a soft-landing story. August sales rose 1.2%, and the control group that feeds GDP was +1.4%. Consumers are still spending. Warsh has been saying growth is firming. That print backs him up, which is why a hike did not automatically produce lower long-term rates.
Housing: Starts Cooled, Contracts Did Not Stop
August new housing starts fell 2.6% to a 1.28 million pace, and permits fell 2.7% to 1.39 million. NAHB’s builder index dropped three points to 32 — anything under 50 means more builders call conditions poor than good. That is caution, not a collapse. New construction still must compete, which is why buydowns and closing cost help remain the listing conversation on new homes.
Pending existing-home sales, which are signed contracts rather than closings, rose 0.3% from July to August. They are still 4.7% below a year ago, and all four regions were down year over year. Lawrence Yun’s line is the right one: buyers are still writing contracts. They are just writing fewer of them. August pending sales were negotiated when rates were high-6s and early-7s, not at Friday’s 7.20%.
Weekly Rate Recap and What to Expect This Week
As of Friday, average 30-year fixed rates for A+ tier buyers sat at 7.20%, 15-year 6.83%, jumbo 7.36%, FHA 6.81%, VA 6.82%. Those are advertised rates, often with points, for a well-qualified file — not the quote on a thinner credit or a second home. Seconds and investments are still a different conversation, often into the 8% range today.
This week is quieter on data: new-home sales and jobless claims Thursday, plus durable goods, and sentiment. Anytime we have a slow economic news week, the focus shifts to geopolitical news more heavily. Keep a watch on Middle East news, and how oil reacts…anything that puts upwards pressure on oil will do the same to mortgage rates and vice-versa. Here’s a snapshot of how the week ended, and rates year-to-date.
What I’d tell a buyer or seller this week
A Fed hike did not freeze the market, and it did not cheapen money overnight. After the dust settled, a 0.250% Fed Funds rate hike moved mortgage rates north by 0.08% from 7.12% to 7.20% on the week.
New construction: ask what the builder will pay to buy the rate down. The buy down often isn’t “free.”
Resale: more inventory and more days on market than a year ago, which is negotiating room for buyers, not a fire sale.
Have a great week!