Home price appreciation got way ahead of itself by rising roughly 40% over 2 years (this also contributes to inflation metrics).To make matters worse, they're not really considering the mortgage or housing market in that endeavor for two reasons: In fact, the Fed actually WANTS to see a measured amount of suffering in order to confirm that it has hiked rates enough. In other words, the Fed is determined to hike rates as high as it can and keep them there as long as it can, even if that means the economy suffers. The initial rate cuts by Volker were widely criticized as a 'Fed policy error'-one that multiple Fed speakers have recently vowed to avoid in the present. The Fed's sense of urgency is higher than it otherwise would be due to parallels it perceives to 1980, when then Fed Chair Volker cut rates from 16% to 11% at the first sign of lower inflation only to hike them to 19% 2 months later when inflation proved resilient. And to a lesser extent, a recent stint of incredibly rate-friendly Fed policies that require a bit of unwindingĪll of the above led the Fed to make drastic changes to the Fed Funds Rate and the bond buying programs that helped keep mortgage rates near all-time lows as recently as late 2021.Why are rates so high? That's a question that we've been answering again and again throughout 2022, but the answer hasn't really changed in terms of its essential ingredients. For even better correlation, we can compare Treasuries and mortgage rates which, as of Friday, moved back up to the highest levels in 20 years. Not a perfect match at all times, but highly correlated in the past few weeks. The next chart shows the June Fed Funds expectations overlaid with 10yr Treasury yields (a quintessential benchmark for longer-term rates in the US). But longer-term rates often line up much better with those longer run Fed rate expectations as seen in the green line above and below. Longer term rates can move in very different patterns compared to short-term rates. The Fed Funds Rate only applies to the shortest-term lending, which is one reason it's not always highly correlated with mortgages (which tend to last 5-10 years on average). Here's how the implied Fed rate has shifted recently for the December 2022 and June 2023 Fed meetings: This allows the market to constantly adjust whereas the Fed only makes changes on a scheduled basis, 8 times per year.

Financial markets can also bet on the future level of the Fed Funds Rates via securities unsurprisingly named Fed Funds Futures. The Fed doesn't directly dictate mortgage rates, but it does set the Fed Funds Rate, which has far-reaching effects. But when it comes to the Fed's favorite reports, the data hasn't given them any reason to go easy on rates. The resilience of the economy is a matter of debate with different cases to be made depending on the data.

Cal mortgage rates