Fed interest rate hike: Experts say it’s not all doom and gloom

“There are likely several contributing factors to this widening gap. The Fed’s winding down of its balance sheet of mortgage-backed securities has likely played a role. Other contributing factors are the perceived risk generated by both rapid home price appreciation, as well as increased pre-payment risk if rates should fall in the next couple of years.”

Gonzales also pointed out the slowdown in home sales, which were down 14% in June and are predicted to continue through July.

Read more: New home sales drop to two-year low

“Home price appreciation has begun to slow, and mortgage rates are a primary factor slowing demand for home purchases. Over the next several months, the housing market will be even more in line with pre-pandemic market conditions,” he said.

Marty Green, principal at Polunsky Beitel Green, remains positive and expects the residential mortgage market to take this increase in stride.