The Federal Reserve Raises The Federal Funds Rate For the First Time In Four Years


The Federal Reserve raised the federal funds rate by 25 basis points This Week in Real Estate for the first time in four years. The 30-year fixed-rate mortgage exceeded four percent for the first time since May of 2019. Below are a few newsworthy events from the third week of March that influence our business:

Solid Reading For Housing Starts In February. Single-family starts posted a small increase in February. The availability of materials, lumber, labor and lots remain key headwinds, with access to labor in particular likely to become more challenging in 2022. Overall housing starts increased 6.8% in February to a seasonally adjusted annual rate of 1.77 million units, according to a report from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. Due to supply-chain effects, there are 152,000 single-family units authorized but not started construction – up 24.6% from a year ago. On a regional basis compared to the previous month, combined single-family and multifamily starts are 28.7% higher in the Northeast, 15.3% higher in the Midwest, 11.4% higher in the South and 11.4% lower in the West. As an indicator of the economic impact of housing, there are now 799,000 single-family homes under construction. This is 28% higher than a year ago. Total housing units now under construction (single-family and multifamily combined) is 23% higher than a year ago. 

The Fed Makes Its Move – And More Rate Hikes Are Coming. The Federal Open Market Committee on Wednesday raised the federal funds rate for the first time in four years, marking an end to the easy money that gave rise to the hottest mortgage market in U.S. history. The FOMC, as was predicted, raised the federal funds rate by 25 basis points to 0.25 – 0.50 percent, the first time the FOMC has changed the federal funds rate in two years, and the first rate hike since March 2018. The move, designed to slow the pace of inflation, which reached 7.9% for the year that ended in February, is sure to increase the cost of mortgage borrowing. Whether it slows the frenetic pace of a housing market with historically low supply is yet unclear. “The Fed worked to ensure today’s announcement would not be a surprise, with the rate hike following a series of foretelling decisions, including its acceleration of asset tapering in December through the end of its asset purchase program earlier this month,”‘s chief economist Danielle Hale said in a statement following the announcement. Though the rise of mortgage rates – the MBA anticipates rates to hover around 4.5% for the next year – will force some would-be buyers out of the purchase market, other factors appear more important.

Homebuilder Confidence Still Strong, But Suffering From Future Outlook. Residential construction and its logical impact on builder confidence has been one of the biggest pleasant surprises of an otherwise very unpleasant catalyst (i.e. the pandemic). Construction has progressed just as fast as material and labor availability have allowed and builder confidence has risen accordingly. According to the National Association of Homebuilders (NAHB)/Wells Fargo Housing Market Index (HMI), builder confidence topped out in late 2020, but has remained in record high territory since then. The overall index is still much higher than the pre-covid era, but it has been declining moderately since the most recent peak in December.

Did you know every home listed for sale with Berkshire Hathaway HomeServices Northwest Real Estate and Berkshire Hathaway HomeServices Real Estate Professionals is eligible to receive no-obligation home warranty coverage from American Home Shield the first six months the home is listed with our company?