The Fed Raised Rates Again: What It Means for LA Real Estate and Hard Money Loans

On September 16 the Federal Reserve raised interest rates for the first time since 2023. Mortgage rates have climbed for seven weeks straight, and the 10-year Treasury yield is above 5%. Here is what changed, why it happened, and what it means if you buy, own or finance real estate in Los Angeles.

What the Fed did on September 16

The Federal Open Market Committee, the group of Fed officials that sets short-term interest rates, voted 12–0 to raise the federal funds target range by 0.25 percentage point, to 3.75%–4.00%.^[1] It was the first increase since July 2023 and the first meeting with a hike under Chair Kevin Warsh.

The move also lifted the rates the Fed pays and charges banks: interest on reserve balances rose to 3.90% and the discount rate to 4.00%.^[3] The rate banks actually charge each other overnight, the effective federal funds rate, was 3.88% on October 13.^[5]

The Fed's statement was short and direct. It described an economy that is growing, with job gains that have "kept pace with the workforce" and an unemployment rate that "has changed little," and then made its point:

"Inflation remains elevated."

To put the hike in context, here is how the Fed's rate has moved over the last seven years:

Why the Fed raised rates: inflation came back

The September consumer price report, released October 14, showed why the Fed is worried. Prices rose 0.6% in a single month and 3.7% over the past year, up from 3.4% in August.^[6] Energy did most of the damage. Gasoline prices jumped 9.1% in September alone, accounting for more than half of the month's increase, and are up 34.2% from a year ago.^[6]

The energy spike is tied to the conflict involving Iran and the disruption of oil shipping through the Strait of Hormuz, a subject that came up directly at the Fed's press conference.^[2] Core inflation, which leaves out food and energy, is calmer at 2.6%, but it is rising too, and shelter costs climbed another 0.4% in September.^[6]

Inflation has now run above the Fed's 2% target for more than five years, and Chair Warsh made clear that this is what drove the decision:

"The plain fact is that inflation is too high and has been for too long."

A fair question is whether raising rates can do anything about oil. A reporter put it plainly: a quarter-point hike does not reopen a shipping lane. Warsh agreed the Fed "cannot affect any individual price," and said the goal is to keep higher energy costs from spreading into everything else, from shipping to rents to wages.^[2] The minutes back this up: many officials warned that the longer energy prices stay high, the greater the risk of broader price increases.^[3]

The Fed also judged that money was too easy to get. Warsh said he "would be hard pressed to describe broad financial conditions as restrictive," and that the Committee "removed a dose of accommodation."^[2] The labor market gave the Fed room to act: unemployment is around 4.1%, close to what the Fed considers full employment.^[2]

What comes next for the Fed

The Fed rarely raises rates once and stops. The minutes of the September meeting say most officials expected that "another increase in the target range for the federal funds rate would likely be appropriate by year end."^[3] Officials' updated projections put the median federal funds rate at about 4.1% by the end of 2026, which implies one more quarter-point hike.^[4]

Officials also said risks to inflation were "skewed to the upside," while risks to the job market were "broadly balanced."^[3] In plain terms, they are more worried about prices than about jobs.

The next two decisions are October 28 and mid-December. Here is how each outcome would likely affect borrowers:

The rate that matters more: the 10-year Treasury

Here is the part most headlines miss. The Fed controls a very short-term rate, the one banks use overnight. Mortgages and most real estate loans are priced off longer-term rates, mainly the 10-year Treasury yield, which investors set every day in the bond market.

That is why mortgage rates did not fall when the Fed cut. From September 2024 to December 2025 the Fed lowered its rate by 1.75 percentage points. Over the same stretch the 10-year yield went up, from about 3.7% to 4.1%, and the average 30-year mortgage stayed at about 6.2%.^[8][7]

This year the 10-year yield has climbed from an average of 4.21% in January to 5.19% on October 14. It closed at 5.31% on October 5, well above its October 2023 peak of 4.98% and the highest level since July 2007.^[8][9] At the press conference, Warsh gave three reasons for higher long-term yields: a stronger economy, competition for capital as large technology companies borrow heavily to invest, and geopolitics.^[2]

Mortgage rates followed. Freddie Mac's 30-year average rose for seven straight weeks, from 6.65% on August 20 to 7.40% on October 8.^[7] The 15-year rate reached 6.73%. The Fed's minutes noted that mortgage rates rose "a bit more" than Treasury yields and called financing conditions for mortgage borrowers "somewhat restrictive."^[3]

What that means for a monthly payment

For a typical Los Angeles purchase, the difference is large. Here is the principal and interest payment on an $800,000, 30-year fixed loan:

Compared with a year ago, the same loan costs about $600 more every month, or roughly $7,000 a year. Compared with 2021, it costs more than $2,300 a month extra. That is why so many owners with low-rate loans are staying put, and why so many buyers are stuck.

What this means for the Los Angeles housing market

Higher rates have not crashed Los Angeles prices. They have slowed the market down. Prices are roughly flat, and fewer homes are changing hands.

• Prices are holding. Redfin puts the Los Angeles County median sale price at about $913,000 for the three months ending in September, down 0.2% from a year earlier.^[10]
• Sales are down. About 4,157 homes sold in the county in September, compared with 4,506 a year earlier, a drop of nearly 8%.^[10]
• Homes take longer to sell. The average home spent about 52 days on the market.^[10]
• Supply is still tight statewide. In July, California's median price was $887,680 and active listings were 9.3% lower than a year earlier, the sixth straight yearly decline.^[11]

The Fed itself noticed. In its minutes, a few officials described housing as "a sector in which financial conditions did not appear supportive of activity," and borrowing for home purchases "remained depressed."^[3]

For Los Angeles this creates a familiar pattern. Owners with 3% mortgages do not want to sell, so supply stays low and prices stay up. Buyers who need a bank loan face higher payments and stricter approval. Sellers who must sell, because of a move, an estate, a divorce or a business need, find fewer qualified buyers. Deals still happen, but they reward people who can close quickly and with certainty.

Commercial property: the 2026 refinancing wall

For owners of hotels, gas stations, apartment buildings, retail and other commercial property, the bigger issue is not buying. It is refinancing. A large share of commercial real estate loans made when rates were low are coming due now.

• The Mortgage Bankers Association estimates about $875 billion of commercial real estate loans mature in 2026, roughly 17% of all such debt.^[12]
• S&P Global puts the figure higher, at about $936 billion, because many loans that were due in 2024 and 2025 were extended into this year.^[12]

A loan taken out at 4% that now needs to be refinanced with the 10-year Treasury above 5% often will not qualify for the same amount. Banks look at debt-service coverage, and a higher rate means the same rent supports a smaller loan. The owner has to bring cash, sell, or find another lender.

The Fed's minutes say financing is "somewhat restrictive" for small businesses, and that credit "appeared to be somewhat tight for private credit loans and small businesses."^[3] Many Los Angeles property owners are exactly that: small businesses with real equity and a deadline.

What this means for hard money loans

Hard money loans are short-term loans secured by real estate. Approval is based mainly on the property's value and the borrower's equity, not on tax returns or debt ratios. They cost more than bank loans, and they are designed to be repaid within months, by selling or refinancing.

Here is what the current rate cycle means for them.

1. Hard money rates barely move with the Fed

Private lenders price loans on risk, leverage and speed more than on the Fed's overnight rate. Industry data from Lightning Docs, which tracks thousands of private loans each month, shows the median bridge loan rate fell to 9.99% in January 2026, the first time below 10% since July 2022.^[13] In April, bridge rates were essentially unchanged, and nearly 40% of the 3,156 bridge loans in its data carried rates between 9% and 9.99%.^[14] Competition among lenders and institutional money have kept pricing steady even as bank rates climbed.

City Capital Realty's published bridge terms are 9% interest, up to 70% loan-to-value, a 2% origination fee and terms up to 12 months, with 4 guaranteed monthly payments.^[15]

2. The cost gap with bank loans has shrunk

In early 2021, a 30-year mortgage cost about 2.65%. A 9% hard money loan cost more than 6 points more. Today, with the 30-year mortgage at 7.40%, the gap is about 1.6 points. For a six- or twelve-month loan, that difference is often smaller than the cost of losing a deal.

3. Speed and certainty are worth more now

When banks tighten, their approvals take longer and more deals fall through. A seller choosing between offers will often pick the buyer who can close in a week over the one who might close in 45 days. Hard money is built for that: approval based on the property, and funding in days, not months.

4. Demand is rising where banks pull back

The situations where a hard money or bridge loan makes sense are growing in this market:

• Buying before selling. Use equity in your current property to buy the next one, then sell and repay.
• A commercial loan coming due. Bridge the gap while you lease up, sell, or wait for a better long-term rate.
• Auctions, estate sales and short sales. These require cash on a short timeline.
• Fix-and-flip and renovations. Buy and improve a property a bank will not finance in its current condition.
• Self-employed borrowers. Strong properties, but income that is hard to document the way banks require.

An example in today's numbers

Say you own a Westside home worth $2,000,000 and still owe $400,000. You have found your next property and want to buy before you sell. At 70% loan-to-value, a bridge loan could provide up to $1,000,000:

That cost is real, and it should be compared with the alternative: missing the purchase, selling first and renting in between, or accepting a lower price to sell quickly. You can run your own numbers with the calculator on our bridge loan page. This is an estimate only; actual terms depend on the property and our review.

What Los Angeles investors and owners can do now

• Price deals at today's rates, not hoped-for rates. The 2025 cuts showed that a lower Fed rate does not guarantee lower mortgage rates.
• Plan your exit before you borrow. Every short-term loan needs a clear path out: a sale, a refinance, or a lease-up. Build in time for delays.
• Start refinancing early. If a commercial loan matures in the next 12 months, talk to lenders now, while you still have choices.
• Watch the 10-year Treasury and oil prices. They will tell you more about mortgage rates than the Fed's announcement.
• Keep cash reserves. Higher rates and slower sales mean properties can take longer to sell or refinance.
• Use speed as an advantage. In a slow market, the buyer who can close quickly often gets the better price.

Frequently asked questions

Shawn Rabban is the founder of City Capital Realty, a hard money lender in Westwood, Los Angeles. He also hosts a real estate show on 670 AM KIRN.