Mortgage rates have been on a wild ride as of late, have you been keeping up? The Board of Governors of the Federal Reserve System voted unanimously to raise the interest rate paid on reserve balances by 0.25 percentage points, effective February 2, 2023. The Fed has made eight increases since March 2022 to slow economic growth and curb inflation. We can expect to feel a ripple effect, including increased rates for credit cards, home equity lines of credit, and adjustable-rate mortgages. Additionally, the rise in rates can impact the overall housing market, potentially slowing home sales and affecting home values. Homebuyers need to understand how the Federal Reserve's rate hikes might impact their finances and plans to purchase a home.
How will mortgage rates react to Fed hikes?
The record-low interest rates of 2020 brought us a hot housing market filled with record-high home prices and inventory shortages. As interest rates rise to their pre-pandemic levels, it's no surprise that many potential homebuyers are weary about buying their next home. So the real question stands; how does this affect the millions of Americans longing to build equity by investing in their dream homes?
Mortgage rates react similarly to the Federal Reserve's interest rate hikes. When the Fed raises its interest rates, it becomes more expensive for banks to borrow money, and they typically pass on these increased costs to consumers through higher mortgage rates. However, it's important to note that other factors, such as the economy's overall health and the supply and demand for mortgages, can also impact mortgage rates.
Buying a home in today's climate
According to Michael Fratantoni, chief economist at the Mortgage Bankers Association, interest rates will go down once inflation is under control, which will, in turn, bring prices back up. While higher rates mean a higher monthly payment for your buyers, they also mean lower competition and increased incentives. Plus, many builders are offering competitive pricing and promotional rates. Reminding home buyers they can refinance when rates come down again; they may even want to consider taking out a variable-rate loan. Homebuyers must clearly understand their financial situation, including their credit score, income, and expenses, before entering the home-buying process.
Next steps for home-buyers
- Explore mortgage options
- Find their ideal new home
- Get pre-qualified
- Lock in their mortgage rate
The Federal Reserve's recent interest rate hikes have various consequences for homebuyers. It's essential to stay informed about the economy and the housing market and to work with a trusted financial advisor to make informed decisions about their homeownership goals. At PresGroup we can help you stay informed and create the opportunities for your future homeowners. Contact us today, to learn how we can help you strategize and drive buyers through your doors.