This week the Federal Reserve raised interest rates for the second time this summer. What does this mean for your mortgage rates and pre-approval amounts?
We aren’t going to get into a full analysis of economic trends, but here’s a quick summary of what this means.
The Federal Reserve sets the cost of borrowing short-term money. This means short-term loans such as credit cards, home equity loans and adjustable-rate mortgages will be affected immediately. Long term debt, like mortgages are tied to the 10-year Treasury rate and other factors including supply and demand. When mortgage lenders are too busy, their rates increase. When business is light, they tend to cut rates to attract more home buyers. Inflation impacts mortgage rates as well. When inflation is low, rates trend lower as well. So, what that means is that the recent interest rate hikes will not have an immediate impact on mortgage rates.
If the Fed’s attempts to break the inflation trend with these rake hikes is successful, we will actually see mortgage rates drop in the coming weeks and months.
According to the Mortgage Bankers Association mortgage rates have dropped about a half percentage point in recent weeks. They believe that mortgage rates have already peaked for 2022 and will stay where they are or slightly lower for the remainder of 2022.
During the pandemic, long term interest rates and mortgages were at historic lows, which kinda spoiled us all into seeing such low mortgage rates. We should have known it wouldn’t last forever…but we were hoping. Now that the pandemic rates and relief are behind us, we are seeing rates in the 5-6% range and perceive these as high rates. Historically they are NOT high.
The question is if the market is normalizing, is that due to buyers waiting to see where interest rates and home prices trend, or they are delaying indefinitely because of affordability. If the Mortgage Bankers Association predictions are true, potential buyers who have been waiting out the interest rate announcement s may find their way back into the market.
So what should you do? Locally, inventory is up about 50% from last year at this time. Sellers are still pricing their homes to take advantage of the hot market.
Here’s the plan. Find a local lender so you can get pre-approved and understand what your buying power is at today’s rates. Find a local broker that knows our market and what homes are worth today…and yesterday. Then go to the previous way of doing business – Make an offer at what YOU and your broker think a home is worth, and negotiate. Today’s market is giving buyers a chance to make an offer and negotiate, where previously many saw multiple offer situations or couldn’t even get one in.