How Fed Interest Rate Hikes Are Going to Affect Your Home Buying

Interest rate hikes

Covid stimulus checks went a long way towards keeping the economy from crashing in 2020-2021, but we’re paying the price for all that “free money” today. Inflation is out of control, and we’re seeing price hikes now that haven’t been seen in 40 years. The economy is too hot and the supply chain is still too broken to meet America’s demand for housing. The power of the dollar is sinking, and too many Americans still don’t have sufficient wages to afford homes at the current prices.

If the Fed doesn’t do something to rectify the situation, it will cause market-wide instability. In addition to all of these issues, scarcity in housing supply caused prices to skyrocket. The Fed’s solution to these problems is to raise the interest rate by .5%. The Fed hasn’t raised interest rates like this in 20 years, and it’s an extreme measure only used when absolutely necessary. It’s the right thing for the Fed to do, but raising the interest rate so much so quickly hasn’t been done in 20 years.

What’s Going to Happen to the Housing Market?

So what does all of this mean for the housing market? It’s about to cool down a little bit. Raising interest rates means home buyers have to pay more money to borrow from banks. Prospective homeowners can expect to pay tens of thousands of dollars more for a mortgage for each percentage point the interest rate increases.

Paying half of a percentage point more in interest translates to paying about $30,000 more for a $300,000 home with a 30-year mortgage. That makes a huge impact on the housing market. Of course, the market is going to cool off in response to the rate increase. A lot of borrowers were already on the verge of not being able to afford to buy a home because prices are already so high, and this rate increase just pushed home ownership out of their reach. It’s not all bad though.

Cooling Overheated Markets

For the last two years, buyers have been getting into bidding wars just to be able to buy a home. There are scores of prospective buyers who simply aren’t in a position to do this. There’s considerable frustration on the part of buyers right now, and this rate hike probably won’t make them feel much better. However, this action by the Fed is for the buyers’ benefit. It just takes time to reap the rewards. If fewer buyers can afford homes, the market will cool off and prices will drop. Have patience, because relief is coming down the pike.

Relief is Coming

Nearly all real-estate professionals understand that the market is too hot right now. While sellers are realizing a huge benefit from the overheated markets, buyers are agonizing trying to find housing they can afford. The Fed’s rate increase will slow the housing market and inflationary growth, cool off markets that are too hot, and appease American families weary of sky-high prices and shrinkflation eating away at their buying power. It’s going to hurt for a little while longer, but expect to see prices dropping in a few weeks’ time.

Stock Market Rallies After Rate Hike

Financial experts across the board agree that the Fed is doing the right thing here. Immediately after the Fed went public with the news, the stock market experienced triple-digit gains. Everyone in the US is ready for this much-needed slow-down. While it came nearly six months earlier than expected, the rate increase is welcomed news.

If you’re considering buying a home, get ready now. Your chance to buy the dip is coming. Contact a Potempa Team agent today to pre-qualify for a loan.

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