(NerdWallet) – Mortgage interest rates should continue to rise in October. Projecting the trend for mortgage rates this month isn’t particularly tricky, but it doesn’t look like there will be any fun either.

Although we don’t face the specter of another Federal Reserve meeting until November, central bankers Increase in rates by 75 basis points at the end of September, coupled with their latest set of interest rate forecasts, should be more than enough to scare off mortgage lenders. What’s less clear is whether lenders will preempt the expected increases by rapidly raising rates in October or whether we’ll see a more gradual climb.

Federal Reserve actions push mortgage rates up

The Federal Reserve may not have scared off inflation yet, but it has undoubtedly prompted a reaction from the housing market. Mortgage interest rate rose ahead of every Fed meeting in 2022, with an upward trend even before the first increase in the fed funds rate was announced in March.

The build-up to the September meeting saw a significant jump, with 30-year fixed rate mortgages rising above and then remaining above 6%. Arguably, it was the mortgage lenders who came before the Fed. An aggressive 75 basis point hike was expected, and some had even considered a 100 basis point hike a real possibility.

In addition to its usual announcement, the Federal Reserve released a summary of economic projections after the September meeting. These forecasts are released four times a year; the last was back in June. The strategy has become considerably more aggressive over the summer, forecasting that the fed funds rate – currently 3% to 3.25% – will reach around 4.4% by the end of the year and rise further. more in 2023. In June, the expected year-end 2022 figure was 3.4%, which two more rounds of rate hikes in November and December will easily pass.

Although mortgage interest rates are not directly tied to the federal funds rateincreases in this rate make all types of borrowing – including getting a home loan – more expensive.

Affordability is deteriorating even as prices begin to fall

This rising rate environment sends shivers down the spines of many potential buyers, even as house prices show signs of slowing. Although year-over-year increases continue, in August the median price of existing homes fell for two consecutive months, according to the National Association of Realtors. However, the additional interest that financed buyers must pay potentially negates any benefit from lower prices.

To borrow $300,000 at 6% interest, a buyer would need to consider monthly principal and interest payments of nearly $1,800. In early 2022, when interest rates were around 3.5%, monthly payments on a $300,000 mortgage would have been just under $1,350. The same loan would now cost about $450 more per month.

The rising cost of borrowing lowers demand, as the Fed had hoped, creating a little less competition in some markets. There is still a shortage of available accommodation. However, if these trends continue, we could see a housing market that favors buyers before the end of the year, according to Black Knight, a mortgage and real estate analyst firm.

What happened to mortgage rates in September?

Mortgage rates rose every week in September. Interest rates on 30-year fixed-rate mortgages hovered around 6% in June, but in the past month they quickly moved north of 6% and stayed there. Other types of loans also rose – interest rates on 15-year fixed rate mortgages and 5-year variable rate mortgages, for example, were above 5%.

Our September forecast called for fixed rate mortgage rates to “remain relatively stable” for the first three weeks of the month, potentially rising after the Fed announcement on the 21st. Instead, this rise began soon after. Labor Day, as these weeks have seen Federal Reserve officials make public comments about their commitment to fighting inflation with rate hikes, as well as a report from the Bureau of Labor Statistics showing that if the rate inflation had slowed, it was still near 40-year highs.