Fed holds rates but two officials want a hike, leaving builders facing 7% mortgages into winter
The Federal Reserve left its benchmark rate at 3.75% to 4% on Oct. 28 in a 10-2 decision, with two dissenters, Fed Governor Lisa Cook and Beth Hammack, president of the Cleveland Fed, voting for a quarter-point increase. Futures pointed to a likely hike in December, and the average 30-year mortgage sits above 7%.
The pause comes after a quarter-point increase in September, the first in more than three years. The Fed's statement said inflation is still elevated and that more data will help it choose the stance needed to get back to 2%. The next meeting is Dec. 8-9. On the morning of the decision, traders priced an 84% chance of a December hike, Yahoo Finance reported.
The Fed does not set mortgage rates. Those track Treasury yields, and the 10-year yield was around 5% on Wednesday. Freddie Mac's average 30-year fixed rate stood at 7.32% for the week of Oct. 22, according to figures published by WRE News.
Builders were already squeezed. In October the NAHB/Wells Fargo builder confidence index slid three points, to 29, its weakest reading since June 2012. Some 43% of builders cut prices, the largest share NAHB has recorded since 2020, with an average cut of 6%, and 65% offered sales incentives, the 19th month in a row above 60%. The buyer traffic gauge fell to 18. NAHB chairman Bill Owens pointed to costlier construction loans, materials and diesel.
Canada moved the other way the same day. The Bank of Canada lifted its policy rate by a quarter point, to 2.5%, its first increase since July 2023, to keep high fuel prices from feeding wider inflation.
Why it matters: Budget for construction loan costs to stay high through winter and price incentives into spec homes now. If the Fed raises rates on Dec. 9, prime-linked credit lines go up with it, so lock in what you can before then.
Sources
- Builder Sentiment Falls on Rising RatesNAHB, Oct 19
- Bank of Canada raises interest rate as inflation projected to worsenBNN Bloomberg, Oct 28
- Fed Holds Rates at 3.75%-4.00% as Two Officials Call for Another HikeWRE News, Oct 28
- Fed meeting live updates: Federal Reserve holds interest rates steady in split vote ahead of midterm electionsYahoo Finance, Oct 28