Wednesday's federal interest rate hike of 0.75% marks the highest rate hike in decades. Economists say the move is aimed at tackling inflation, making it more expensive for consumers and businesses to borrow money and lowering the costs of goods and services.
The rate hike is also indirectly impacting the housing market.
According to the Mortgage Banking Association, the average contract rate on a 30-year fixed mortgage was 5.65% for the week ending June 10. That's the highest level since 2008.
They MBA says there was a spike in home purchases last week as compared to the week before because people anticipated the federal rate hike.
At the same time, the MBA says purchase applications on homes were down more than 15% from this time last year, an indicator that supply may finally make up some ground on the recent demand for homes.
Paul Murphy is breathing a huge sigh of relief. He just closed on his newly built home in Surprise two weeks ago.
"We went through four drawings," Murphy said reflecting on the process it took to secure his lot.
Murphy started with a quoted mortgage interest rate of 3% but saw rates steadily increase during the building process.
"They were going from 3.0%, to 3.2%, to 3.6% so we started getting a little spooked with things," he said.
Murphy decided to go with a locked-in rate of 4% percent with a hard deadline of 105 days. And Murphy would have to pay a huge penalty if he didn't close in time — $1,142 for every seven days over the 105-day cap.
Murphy says panic nearly set in when his builder started experiencing delays.
"It was starting to get a little stressful," he said. "We kept getting bumped with our closing," he said.
But Murphy says his builder finally came through, and they were able to close with just a slight extension.
Murphy still keeps up with mortgage rates, noticing them climb to near 6% in recent days thinking if he hadn't closed when he did, "we most likely would've been out," he said.
The rate increase would've put them beyond their monthly budget.
Murphy thinks the recent rate hike from the feds may eventually lower home prices. In fact, he says one of his colleagues already saw it happen with a builder in a new home development.
"They actually lowered the price by about $75,000, so I think what you're gonna see now is that in order to get people to keep buying, the builders gonna have to start possibly bringing their prices down some," Murphy said.
In the short term, however, he thinks the higher rates will price some people out of the market.
"Unfortunately, it's probably going to cost some people their dream of getting their home right now," he said.