Interest rates are continuing to rise as inflation is running hot. But if you want to look at the bright side it’s possible the intense competition in the housing market may start to cool off here soon.

Key economic data released over the last week shows what every American has been feeling lately. The consumer price index (CPI) rose by 7.5% compared to last year—the highest reading for that data point since February 1982. The CPI report from the Labor Department is a survey of prices paid by American consumers across a range of goods and services. The CPI data was part of the reason the 10-year Treasury note yield topped 2% for the first time since 2019. 

The other half of the upward pressure on the 10-year note was a comment from St. Louis Fed President James Bullard. Bullard said in an interview that he would entertain a 50 basis point increase to the overnight lending rate in March, adding that he would be open to a full percentage point of hikes by July. This much more hawkish stance from Federal Reserve members is pushing up the 10-year note yield and also forcing a rise in mortgage interest rates.

Rising wages are also factoring into the Fed’s potential rate hike decisions. The Labor Department’s data shows that wages have increased at a 5.7% pace over the last year which is an extremely speedy rate. However, it’s not even close to keeping up with inflation. Some economists feel that the Fed is now being forced to play a game of catch up meaning it will make larger rate increases and make them more rapidly.

Freddie Mac’s economists noted a similar sentiment in their weekly release on interest rate averages, saying “The normalization of the economy continues as mortgage rates jumped to the highest level since the emergence of the pandemic. Rate increases are expected to continue due to a strong labor market and high inflation, which likely will have an adverse impact on homebuyer demand.” The 30-year fixed-rate mortgage average jumped to 3.69% in the latest Freddie Mac survey. 

As we pointed out last week, that is still well below historical averages and, before the pandemic, was considered an excellent interest rate for a 30-year fixed-rate home loan. The issue with the higher rates is higher home prices which are causing a lot of problems in the home search for many people. As rates rise it’s very likely that the competition will die down and could result in a distinct slowdown in home price acceleration. It’s also good to keep in mind that there are a lot of different loan types that can help offset some financial burdens. 

If you’re flexible about where you want to purchase a home, you could look into homes that are eligible for a USDA loan. USDA loans offer a 0% down payment for those who qualify. You can check this eligibility map to find properties that could qualify. There are also VA loans which allow for qualifying veterans to purchase a home with a 0% down payment to help offset high home prices and rising interest rates. If you’re a first-time homebuyer, you might qualify for an FHA loan which allows qualifying applicants to put as little as 3.5% down. It is always best to speak with a Movement Mortgage loan officer before you start looking for a home to make sure you know what you can afford and what type of loan best fits your individual situation.