Mortgage Rates Slide in Wake of Latest Federal Reserve Hike

Mortgage rates retreated from their climb toward double-digit territory Wednesday following the Federal Reserve Board’s latest and most aggressive inflation-fighting move this year.

That has brought a sigh of relief from mortgage bankers, real estate agents and prospective homeowners who feared a difficult market due to rising rates.

“It was going to be a tough season. . . . This should help business,” said Jim Antt, president of Jim Antt Realtor in Bakersfield. “We’ve already gotten more calls from people wanting to see property.”

The average rate on a 30-year mortgage--which rose two percentage points in just seven months to 1992 levels--fell from 8.90% late Friday to 8.75% on Tuesday, when the Fed hiked two key interest rates, according to HSH Associates, a Butler, N.J.-based mortgage research firm.

While the Fed pushed short-term rates higher, longer-term rates--used in setting mortgage rates--fell in the bond market.

The average rate on a 15-year loan fell to 8.24% from 8.40%, while the one-year, adjustable-rate mortgage rose to 5.70% from 5.53%, HSH said.

By early Wednesday, some lenders had gone even lower, with at least four offering 30-year mortgages at 8.125% and about a dozen at 8.25%, among them PNC Mortgage Corp. in Greenbelt, Md., said Keith Gumbinger, a spokesman for HSH. Just last week, he said, several banks were firmly in the 9% range.

“The response (to the Fed increase) was virtually immediate,” Gumbinger said.

The central bank sent a dramatic signal of its determination to hold down inflation by raising the discount rate it charges banks by half a percentage point, to 3.5%. It also boosted from 3.75% to 4.25% the federal funds rate, which banks charge each other on overnight loans.

The discount rate increase was the first in five years. The Fed had already pushed the Fed funds rate up three previous times this year, though in smaller increments of a quarter percentage point each time.

In response, major banks raised their prime lending rates by half a percentage point, to 7.25%.

Although rates on many short-term consumer and business loans are poised to go higher, long-term fixed-rate mortgages managed to buck the trend this time thanks to a rally in the bond market, which cheered the Fed tightening as a positive step against inflation.