Will Mortgage Interest Rates Increase Again?

Consumers everywhere – but especially those looking to enter the real estate market – have been following the Federal Reserve’s actions on interest rates with more attention than usual.  Typically, when the Fed adjusts rates, it isn’t something that most people pay much attention to. 

However, with 11 rate hikes in about a year and a half, consumers have been feeling the pinch of higher interest rates across the board. 

Will Rates Go Up Again?

Last month, the Federal Reserve voted not to raise interest rates during their September meeting, which allowed consumers to breathe a sigh of relief.  

However, we aren’t in the clear yet.

Indications point to the Fed raising rates one more time before the end of the year since inflation is still accelerating – especially in the food and energy sections, which is where most Americans feel the pinch the most.

After that anticipated 12th rate hike, officials are hopeful that rate raises will pause for a bit as officials wait to see how the economy adjusts. A delicate balancing act needs to be considered so that officials can curb price growth without triggering a recession by restricting spending power so much that it leads to job losses. Right now, the unemployment rate is at historic lows, and jobs are being added to the workforce at a rate that is reassuring to officials. 

Why Do Rates Keep Going Up?

The reason rates are increasing is complex, but to put it simply: Federal Reserve officials are trying to curb inflation. By increasing interest rates, they’re hoping to slow down consumer spending and, in turn, slow down price increases across all sectors. 

In a capitalistic economy where everything is based on supply and demand, manufacturers and retailers will continue raising prices (and increasing their profits) until the market can no longer bear the increase. In an ideal world, employers would be able to raise wages so that their employees’ income is able to keep pace with the higher cost of items. Unfortunately, however, that isn’t always the case. Although goods are becoming more expensive, wages aren’t increasing at the same rate, which is creating a difficult situation for many Americans who are suddenly finding their budgets tighter than ever before.

By increasing interest rates, the Fed primarily tries to slow down spending by consumers and corporations who do not want to spend more on credit (whether through mortgages, auto loans, or credit cards and other lines of credit) due to higher interest rates. 

How Does Raising Rates Impact The Real Estate Industry

During the early days of the Covid-19 pandemic, the United States economy saw a number of huge changes. Our supply chain was massively disrupted as manufacturers had difficulty accessing raw materials, and consumers were spending at an all-time high as they bought items – especially paper goods – in bulk. As the pandemic wore on, consumer spending increased since many people had to set up home offices and homeschooling for their kids. They also spent more on at-home recreational activities like electronics, art supplies, and backyard sporting equipment.

Within a few months, many people started realizing that just equipping their living space with suitable activities wasn’t going to “solve” their problems. People living in cities started moving en masse to the suburbs as they craved more easily accessible outdoor space. Families and individuals already living in the suburbs started looking into moving into larger homes so that they had more space to accommodate their new work- and learn-from-home environments. 

All of this created a Sellers’ Market like we’ve never seen before, with home prices skyrocketing and competition for properties on the market becoming incredibly fierce.  And, at the time, interest rates were still relatively low.

However, after 11 straight-rate hikes, home buying is slowing down as people are hesitant to purchase a home with such high interest rates (around 7-8% compared to about 3% at the beginning of the pandemic), but it hasn’t actually turned the market around. Since buyers don’t want to take out a mortgage with a high interest rate, current homeowners are also less likely to list their home for sale (since they would still need a mortgage to purchase their new home), continuing the cycle of low inventory.

People are still buying homes, and prices are still high while inventory remains low. We are, in effect, in a prolonged Sellers’ Market that doesn’t look like it’s going to turn around in the immediate future.

To ensure that you’re making the best real estate decisions for you and your family, it’s important to work with professionals who know the market inside and out. The team at Wilson Associates are not only experts in our local real estate market, but we also have strong relationships with partners in the mortgage, insurance, and construction industries, allowing us to help our clients with every step of their real estate journey. Give us a call today!

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