Yesterday, the Federal Reserve hiked interest rates by half a percentage point – the sharpest increase in over two decades. This hike comes as Americans have enjoyed record-low interest rates over the past two years. Back in 2020, the Fed lowered interest rates to nearly zero to encourage consumer spending and make it cheaper to borrow money. These efforts helped to boost the struggling economy. Now, as U.S. inflation hits record highs – consumer prices surged 8.5% annually in March which was their highest in 41 years – the Fed has begun raising rates to get Americans focused on saving, rather than spending.

While the fed funds rate isn’t directly tied to mortgages, it does have a strong influence on them because it makes it more expensive to borrow money. Mortgage interest rates are the cost or premium you will pay to borrow money from a bank for the purposes of purchasing real estate. Today’s rates now stand above 5% for a 30-year fixed. In January, those rates were in the 3.25% range for a 30-year fixed. A mortgage rate that increases from 3.25% to over 5% can add thousands of dollars to a homeowner’s yearly payments, thus impacting the prices of homes that one can afford. 

 

What This Means for Future Home Owners 

An increase in interest rates will impact future homeowners in a few ways: 

  • Your mortgage will be more expensive, thus impacting your home buying budget. 
  • With fewer buyers able to afford a mortgage, it’s predicted that buyer demand will eventually cool, and sellers will have to accommodate by incentivizing buyers with lower home prices. 
  • Thus, while your mortgage will be more expensive, the cost of homes will likely go down. 
  • To ensure you get the best deal on your mortgage, compare rates from multiple lenders and always talk to your agent about the best options and professional recommendations. 

 

What This Means for Future Home Sellers 

  • With homebuyers more unwilling to purchase with higher interest rates, sellers may run into trouble moving their property. 
  • As a result, sellers will need to incentivize homebuyers by lowering selling prices. 
  • With fewer buyers qualifying for mortgages, demand for rental properties is likely to increase. 

 

With that being said, the waterfall impact of interest rate hikes will take time to play out. The demand in our current market continues to exceed supply, so we may not see a dramatic shift in the immediate future, but we can expect the market to cool in some pockets of the U.S.  Moreover, by historical standards, a 5% mortgage is incredibly low; in fact, today’s market still reflects some of the best conditions for buyers.

When it comes to deciding whether you are ready to lock in a mortgage rate at today’s rate, talk to your real estate agent and lending professional to get a comprehensive understanding of the long-term costs. At the end of the day, your agent is here to help you make the best decision given your financial situation – whether that means locking in a mortgage and buying a home, or holding off and renting. To get in touch with an agent, reach out to us today at hello@triplemint.com