Why Mortgage Rates Could Stay Stable After Another Fed Rate Hike

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The Federal Reserve is expected to raise its key rate again this week, with a fourth consecutive hike of 75 basis points likely.

What does this mean for mortgage rates, which are already above 7% for the first time in 20 years?

Maybe not a lot.

“The tricky thing about watching what the Federal Reserve does is that it doesn’t always translate directly into individual variation in mortgage rates,” says Ali Wolf, chief economist at Zonda, a mortgage data company. construction of houses. “There were times after the Fed meeting when mortgage interest rates actually went down and times when mortgage rates went up.”

Observers expect the Fed to hike its federal funds rate — a short-term rate that determines how banks borrow money from each other — by 75 basis points as part of the the central bank‘s continued attempt to rein in the highest inflation since the 1980s. Experts say the market has likely already “priced in” this change, rising in anticipation of it, and mortgage rates should not not move much, except surprise.

Past Fed hikes offer frustratingly little guidance on what to expect, as the reaction of mortgage rates to previous increases has been pervasive.

“Over the past few months, the markets have been surprisingly surprised to learn [Federal Reserve Chairman] Jerome Powell came out and said ‘we’re raising rates three-quarters of a point,’” says Jeff Tucker, senior economist at Zillow.

Here’s what experts are watching at this week’s Federal Reserve meeting and what it all means for homebuyers.

Fed signals matter more than rate hikes

According to experts, the Federal Reserve’s rate hike in November should not come as much of a surprise. The big question is whether this is the last 75 basis point increase for the central bank. The Fed could signal a slowdown in rate hikes or continued aggression to raise interest rates to rein in inflation, which was 8.2% year-on-year in September.

“If the Federal Reserve forecast doesn’t change from what they last said, it will be less of a shock to financial systems,” Wolf said.

Experts say the aggressiveness of the Fed — how aggressively it is committed to raising rates — will dictate what markets expect going forward. If Powell signals that the current aggressive trajectory will continue, it might not affect rates as much. On the other hand, a more dovish Fed – which indicates that rate hikes will slow – could introduce new volatility.

“They may signal that they’re comfortable with some of the downturn they’re seeing in the economy, and that may mean they’re going to change their policy,” Wolf said.

What the Federal Reserve means for home buyers

Your decision to buy a home should be based much more on your own financial situation than on the statements of a central banker in Washington. With interest rates rising and real estate prices still high, here are a few things to consider when making this decision:

Watch monthly payment

If you can afford the monthly house payment and you want the house, go for it, Tucker says. Regardless of the interest rate, the monthly payment is what you’ll need to fit into your budget.

“What I would ask myself is, can I afford this house and is it the right house that meets my needs and those of my family for at least the next few years, ideally the next few years?” Tucker.

Lock in a rate you can afford

The daily movement of mortgage rates doesn’t matter as much to the individual buyer because you only get one mortgage at one rate. So lock in one you can afford when you get the chance because they might go up.

“If they find a home they love, they definitely have to pull the trigger,” says Joe Allen, senior mortgage manager at Quontic Bank, an online community development finance institution.

Jump on an offer when you find it

Home prices are starting to drop, but they won’t drop forever. According to experts, how far they will go and how long they will stay there will partly depend on your market.

“There’s a balance between patience and paralysis, and you want to make sure that when you see the right opportunity, you’re ready to act,” says Erin Sykes, chief economist at real estate firm Nest Seekers International. “These setbacks usually don’t last very long. If you see prices dropping on a particular home you want or a particular area you want to be in, make sure your ducks are in line financially and get your pre-approvals and have your agent chosen and be ready to act.

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