If the Fed is no longer back-stopping the MBS and housing market through their tightening program, then the issuers of loans will need higher rates of interest as they will be taking on more risk. Thus, higher mortgage rates.
Mortgage rates are most likely going to continue to increase as the Fed raises rates. The average 30-year fixed rate has already moved from 2.7% to around 5% in just a few months; the fastest growth rate EVER. If the Fed is targeting 2% rates, we could see the 30-year fixed rate getting close to 6.5% - 7%.
How that will impact purchasing power in the economy is not quite evident today. However, I would guess that this will greatly strain purchasing power in the not too distant future. That could have a material impact on the economy and growth. You can already see the impact when looking at the longer end of various treasury curves. The housing market is tied to consumer purchasing power is tied to the economy is tied to the stock market is tied to tax receipts and round and round....
