Right now the United States is experiencing an ebb and flow within the economy and the housing market is part of these changes. With inflation increasing around the world, it only makes sense that America would need to start taking steps to combat it state-side. The biggest step taken so far has been by the Federal Reserve and its decision to enact the largest interest rate spike in 28 years.
The goal of the interest rate increase is to help reign in prices on goods such as gas and groceries. The interest rate increase is a 0.75% target with the Fed balancing within that target range based on inflation. While this is a large increase, it’s coming up from historically-low interest rates meaning borrowers aren’t as impacted by the rate itself but instead the cost of homes currently on the market.
Understanding the Interest Rate Changes
The Federal Open Market Committee oversees national and international risks to the US economy in order to take necessary actions as soon as possible. All of that is to say that there are dedicated teams with experience in managing America’s complex economy watching what’s happening around the world. The Fed will only make changes to interest rates and lending options if there are no other actions to take. The hope is that the interest rate increase can cool down the housing market and slow price growth while inflation settles down and more families can afford a new home.
To put the rate increase into a more manageable perspective, take the most recent increase of 0.55% for 30-year fixed-rate mortgages. If the target home is sitting at a $300,000 price tag, the monthly mortgage payment would be right around $1,650 a month prior to the rate change. Now that same mortgage would cost around $100 more each month which is a lot less of an increase than most buyers expected.
It’s a Small Change To Fix a Bigger Problem
Even a small change can have a big impact on a potential home buyer. Many interested parties have a detailed budget they need to stick to either to get approved for a mortgage or to keep themselves financially comfortable once payments start. There’s no denying that a changing interest rate leads to more work on adjusting a budget or changing property targets. The good news is that the Fed set this range to be worked within, not taken instantly to the top.
The silver lining for buyers right now is that they no longer have to compete with those who were only interested due to the record-low interest rates seen in the last two years. Less demand leads to more houses being able to enter the market before being purchased. An ease on the housing supply pinch should slow price growth and give shoppers more options in each market. Sellers are still in a similar position with their property being at a higher value than ever before, they’ll simply have less bids coming in. Don’t worry though, the demand is still high enough that a majority of homes are off the market within weeks.
Entering the housing market right now can seem like diving into the deep end, but the adventure can be an exciting plunge with the right support. The Potempa Team has experience connecting home buyers with the right lending tools through any economic changes. Reach out to our seasoned staff today for a free consultation.