Typically, when the Federal Reserve raises rates, the housing market reacts in a predictable fashion. Mortgage rates climb, followed by declining home prices. This is not what has been happening lately. There have been 10 rate hikes by the Federal Reserve in recent years, intended to help curb inflation, but home prices continue to climb. What is happening?
After the Covid-19 pandemic, the Federal Reserve had to do something to help curb inflation. Typically they raise the benchmark interest rate to accomplish that goal. The benchmark rate increases the rates that banks charge each other for overnight loans. They pass those rate hikes along to consumers by charging higher interest rates on their mortgages, credit cards, auto loans, and other financial instruments. Typically, consumers cut back on their spending in response. This slows price increases, and in some cases brings prices back much lower.
These measures by the Federal Reserve have done a lot to bring inflation back in line, much quicker than in many other countries. The average 30-year fixed-rate mortgage had been down around 2% after the Fed slashed rates to try and stimulate the economy. Now rates are hanging around 8%. This has caused many people to rethink selling their homes because they don’t want to trade a 2% rate on an existing mortgage, for a new mortgage at an 8% rate. The smaller supply of homes for sale is keeping prices higher than they should be considering the rate hikes. This is making the housing market seem abnormal right now, but it is a result of a lot of factors working together in a way that even the Federal Reserve didn’t exactly predict. It is unclear if there will be additional rate hikes, or if additional hikes could lead to a recession. Whatever happens, expect to need more money to pay for a home and expect your payment to be larger than it would have been a few years ago due to the increased mortgage interest rates.
If you are curious about what your home is worth or if it’s a good time for you to buy, give us a call at 803-831-8588. We would love to share our perspective on Lake Wylie and the Charlotte area. You can view current listings and create custom searches on our website here.