The Federal Reserve’s decision this week to hike its key rate by a quarter point felt like yet another rain cloud for those weathering Seattle’s housing market amid stubbornly high mortgage rates. But the impact isn't as straightforward as it might appear.
Mortgage rates are not directly tied to the Fed’s benchmark interest rate. Instead, they typically track closer to the 10-year Treasury yield — returns paid on government bonds — and that yield has been rising in the face of inflation, the war in Iran and other factors.
That's why mortgage rates were on the rise even before the Fed decision.
Since the beginning of the year, the average rate on a 30-year fixed mortgage increased from 6.2% to just below 7% this week, the highest level in more than 18 months.
Seattle-area homebuyers, grappling with high rates and high home prices, may be glad to hear that the Fed’s move this week is unlikely to worsen the picture much — at least in terms of rates.
Mortgage rates are likely to remain around 7% for the rest of the year, predicted Windermere Principal Economist Jeff Tucker. That's a turn from many economists' expectations at the start of the year that rates would hover around 6%.
The bond market had anticipated a rate hike. “That horse has already left the barn,” Tucker said.
'Discouraging'
High rates have been taking a toll on weary home shoppers and sellers for years.
“It feels discouraging because It just feels like our future is kind of up in the air in terms of buying a home,” said Annamarie Scantland, who along with her husband has spent the last three years weighing whether they can afford to buy a house.
High mortgage rates drive up the monthly costs for would-be buyers like Scantland. The monthly payment on the typical midtier home in the Seattle area, including insurance and other costs, stood at nearly $5,000 in late August, according to Zillow. That measure assumes a 20% down payment and a home price of about $727,000 and covers King, Pierce and Snohomish counties.
Buyers hoping to stay in Seattle, where the median single-family home price is $920,000, face even higher costs.
Even with two incomes, the monthly cost of a mortgage in Seattle feels completely out of reach" for Scantland and her husband, both in their 40s. And moving outside the city would force a longer commute.
So the hope of a home with a yard for their two Labs, Fynn and Otto, is on hold for now.
"We just don't know how long it's going to be before we can actually break that barrier and get into a house.”
'Long-term gain'
Inflation, a main factor in the Fed's decision this week, has been weighing down plenty of homebuyers across the Seattle area, on top of mortgage rates.
“They're not just getting squeezed here,” said Nikki Dutton, a senior loan officer at CrossCountry Mortgage in Tacoma, noting high gas and grocery prices as additional pressures.
“I think that the experience of having less money, the experience of having to put their groceries on credit cards — that's the problem, not a quarter-point interest rate hike.”
If the rate hike helps get inflation under control, it will amount to “short-term pain, long-term gain,” said Danny Meier, a loan officer with CMG Home Loans in Snohomish.
The Fed's decision could also bring some mortgage rate relief in the long run, economists say.
If investors believe inflation is coming under control, Treasury yields and, in turn, mortgage rates could eventually come down.
“A higher fed funds rate today is the medicine the housing market needs to recover tomorrow,” Zillow Chief Economist Mischa Fisher said in a statement.
But intense uncertainty remains on the horizon as the war in Iran continues and technological shifts rattle markets like Seattle.
“Greater market confidence in inflation being under control is more likely to bring mortgage rates lower in 2027 and get the recovery back on track,” Fisher said. “Unfortunately, it's going to be a challenged end of the year for home sales before we get there.”
The Fed’s move could have a more immediate effect on homeowners looking to take out a home equity line of credit. But an uptick in HELOC rates may not be enough to discourage homeowners who need to take on that debt, Meier said.
“It’s still cheaper than credit card debt."
'No control over'
As mortgage rates dampen buyer interest and inflation drives up everyday expenses, home sellers are feeling the pressure too.
After two months on the market and three price drops, Kari Nipert’s three-bedroom home on 5 acres in Gig Harbor is still waiting for a buyer.
“It’s just frustrating because I don't know what to do,” Nipert said.
To attract buyers, many sellers are offering concessions, such as money for repairs or to help the buyer secure a lower interest rate from their lender.
From June through August, nearly half of Seattle-area sellers gave concessions, a bit higher than the national average but down from an eye-popping 70% a year earlier, according to data submitted by Redfin buyer's agents. Redfin includes King and Snohomish counties in its Seattle-area data.
Some buyers are saving in other ways: Nearly 60% of Seattle-area homes that sold in August closed below their asking price.
News of a rate hike is “just another factor that I have no control over,” Nipert said.
“We’re all just in this waiting pattern. What’s going to come next?” Nipert said. “How much more is gas going to be? How much more are your utilities and your necessities going to cost?
Selling after a divorce, Nipert is eager to move to her next home and wishes she could take advantage of today’s negotiating power for buyers.
“I see houses out there that would be perfect that I want to move to, but I can't,” she said. “I can't until this sells.”
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