Interest Rates

I am sure you have read or watched something recently that is talking about the increase in interest rates. Although it may have happened quicker than expected, most people saw this spike coming. What does the rise in interest rates mean for you? 

You most likely learned this in an economics course or video from the past, but rising interest rates forces consumers to cut back on spending. Not only for buying homes, but for nearly every product/service. With the increase in rates, it makes buying a home more expensive, which will slighly decrease the demand. This demand will most likely allow for more inventory. It is definitley still a seller's market and home values will continue to appreciate, but the lower demand will have an impact on home prices. 

Another question is who controls the interest rates? The Federal Reserve, also know as the Fed, impacts short term interest rates. The Fed does this for several reasons but the main two are to regulate inflation and to influence the economic activity. The 10 Year Treasury yields directly impact mortgage rates. Why? Mortgage rates are backed by different bonds and securities, which then impacts your mortgage. I won't get into the weeds with this but the lower the treasury yield on the bond or security, the lower the mortgage rate you have. 

Since the COVID-19 pandemic, interest rates have been at an all time low. With the rise in interest rates, there is no denying that buying power has been altered. However, there is denying that the 30 Year Fixed Mortgage rate is still historically low. The highest mortgage rates were observed in the 1980s where they jumped to over 18%. The current rates can change on a daily basis, but are now more aligned with what rates were in 2018. Although the rates are not what we saw in 2021 with the average being below 3%, the interest rates are not the highest we have ever witnessed. 

One thing to remember is interest rates will most likely see more increases by the end of 2022. The Fed has predicted that there will be more spikes in the rates to control inflation. If you are a buyer and have the mentality of "waiting it out," you may talk with your trusted realtor or lender about the consequences of waiting to buy a home. Have any other questions? Feel free to reach out!