In this Real Estate News Brief for the week ending June 18th, 2022... the Fed’s supersized rate hike, mortgage rate sticker shock, and the home equity bonanza.Hi, I'm Kathy Fettke and this is Real Estate News for Investors. If you like our podcast, please subscribe and leave us a review.Economic NewsWe begin with economic news from this past week, and the Fed’s biggest rate hike in three decades. The central bank hiked the federal funds rate by three-quarters of a percent which puts it between 1.5% and 1.75%. If inflation doesn’t show signs of slowing by next month, Fed Chief Jerome Powell said they might hike it by another three-quarters of a percent. He doesn’t expect that to be a common practice, but he said the Fed is determined to get inflation back down to 2%. (1)The rate hike came after two more hot inflation reports. The Consumer Price Index shows that inflation hit an annual rate of 8.6% in May, while wholesale prices came in at 10.8%. Economists are now looking ahead to the CPI report for June as they anticipate the size of the next rate hike and whether higher rates will tip the economy into a recession. As reported by MarketWatch, the Fed has backed off the idea of a “soft landing” and is running the risk of a recession to get inflation under control. (2)The Fed is currently expecting the economy to slow to 1.7% over the next year-and-a-half with inflation running at 5.2% by the end of this year and 2.6% by the end of next year. It anticipates a slight rise in unemployment, but expects the job market to remain strong.Right now, jobless claims are low while job openings are high. There have been some reports of layoffs, which is contributing to recession anxiety. Last week, real estate companies Redfin and Compass announced layoffs, in response to a slower housing market. Redfin is cutting 8% of its staff, and Compass is cutting 10% because fewer people are buying homes. Many can’t afford the high price of the home combined with a more expensive mortgage. (3)The housing slowdown is also impacting residential construction. The Commerce Department says that housing starts dropped 14.4% in May to an annual rate of 1.55 million. That’s the biggest decline since April of last year. Multi-family starts dropped the most - by 26.8%. Single-family starts were down 9.2%. Permits also fell but only by 7%. (4)Mortgage RatesMortgage rates bolted higher last week, for the largest one-week increase since 1987. Freddie Mac says the average 30-year fixed-rate mortgage rose 55 basis points to 5.78%. The 15-year was up 43 points to 4.81%. On a positive note, higher mortgage rates will help control the crazy home price growth we’ve seen lately. (5)In other news making headlines…Mortgage Rate Sticker ShockThe rapid rise in mortgage rates is giving some homebuyers sticker shock. Even though mortgage rates are nowhere as high as they were decades ago, they are at their highest level since about 2008. And that’s cutting into homebuyer budgets. (6)The National Association of Realtors says that higher interest rates have chopped about 25% off the homebuyer’s budget since the beginning of the year. As an example, NAR says that the typical buyer could afford a $360,000 home with a $1,400 monthly mortgage payment in January. Now, with higher interest rates, that buyer will have to shop for a $270,000 home if they want to maintain a $1,400 a month payment because a larger portion of the mortgage will go toward interest.Homebuyers Are Embracing ARMsOne way that homebuyers are dealing with the cost of the loan, is by choosing an adjustable rate mortgage or what’s known as an ARM. The Mortgage Bankers Association says that the number of ARMs doubled in May, to help keep initial payments lower. They were as much as a full point lower on the MAXEX exchange. (7)According to the loan-trading platform, MAXEX is a network of 320 banks and nonbank originators, as well as 20 “high-profile investors.” It says these lenders have been seeing explosive growth