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What the Fed Rate Hike Means for You

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Mortgage and Lending with Mortgages in AZ, CA, CO, DE, FL, GA, IN, MD, MN, MT, NC, NJ, NV, OK, OR, PA, SC, SD, TN, TX, UT, VA, WI NMLS #138061 MMCD #1141

What the Fed Rate Hike Means for You

 

The Fed hiked their Fed funds rate by .75 today, bringing their borrowing rate up to a 2.25-2.5% range.  This comes on the heels of years of the borrowing range being 0-.25%, so the increase is substantial, even with the borrowing rate remaining relatively low.  Each time the Fed raises rates, there is some confusion about what it means, both immediately and more long term.

 

The immediate impact of the Fed funds rate will mainly be more expensive borrowing by banks, which in many cases will be passed along to consumers.  Debts tied to the "prime" rate, such as credit cards and home equity lines of credit (HELOCs) will become more expensive by the same margin as the Fed increase (.75).  Monthly payments on credit card bills and those carrying HELOCs will increase almost immediately.  For mortgage rates, the immediate impact was a positive move, with rates coming down as a reaction to the Fed move.  

 

Mortgage rate movement is often confusing as it seems odd that when rates are increased, mortgage rates fall, but it's important to note why the Fed is hiking rates.  A Fed rate hike is a tool our central bank has to curb inflation.  Since high inflation causes mortgage rates to rise, the efforts to bring inflation down tend to have the effect of lowering mortgage rates.  This is what we've seen since the Fed's last major rate hike in June.  Rates have come down from their June highs, and have continued to improve through today's rate hike.

 

Longer term, the Fed rate hike is likely to put a further damper on the economy, because as borrowing becomes more expensive, spending tends to slow down and capital is removed from the markets.  This is why, historically, Fed rate hikes are usually followed or coincide with recession.  In order to halt inflation, actions are taken to slow the economy.  So while you'll see rates on some products spike immediately, and mortgage rates should come down (while they'll ebb and flow their way there on a daily basis), in the coming months, it's likely the economy will see a slowdown.  

 

For those curious about the impact on the real estate market, with mortgage rates coming down, it should help ease the affordability issues that rising rates have created in 2022.  Couple that with an increased amount of housing inventory, and for the first time in over 2 years, buyers may see attractive rates and have inventory levels present opportunities that may exist without multiple bids, bidding wars, and a market that heavily favors sellers.  However, buyers should also note that falling rates should bring more buyers to market, so it's important to act quickly and take advantage of recent inventory spikes in many markets.

 

Each time the Fed hikes rates, the results are similar, and the next hike is expected to come in September, so it will be important to keep an eye on the jobs reports and inflation reports that are released between now and then, as they'll hold some clues as to how much the next Fed rate hike will be.

 

Do you have questions about the Fed rate hike, or anything else mortgage or real estate related?  You can ask an expert here for a close to immediate response!

Posted by

John Meussner
NMLS ID #138061

It's more than a house - it's home.  So we offer a wide range of mortgage products at competitive prices to help our clients achieve financial security at home.  While we get great feedback on our prices and products, many clients say their favorite part of working with John Meussner & MasonMac is the level of service provided along the way.

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Comments(17)

Jeff Masich-Scottsdale AZ Associate Broker,MBA,GRI
HomeSmart Real Estate - Scottsdale, AZ
Arizona Homes and Land Group/ Buy or Sell

Thanks for the update John. Will be interesting to see how high mortgage rates will go during the remainder of this year.

Jul 27, 2022 04:34 PM
John Meussner

Hi Jeff Masich-Scottsdale AZ Associate Broker,MBA,GRI I'm actually expecting rates to dip through the end of the year, we're well off the recent highs and hoping that trend continues!

Jul 28, 2022 01:51 PM
Paddy Deighan MBA JD PhD
http://www.medicalandspaconsulting.com - Vail, CO
Paddy Deighan J.D. Ph.D

I am astounded that the public seems to be passe about the Fed rate hikes...they seem to feel it does not effect them

Jul 27, 2022 07:49 PM
John Meussner

There's certainly a lot of misunderstanding around how the Fed operates and what the effects will be.  

Jul 28, 2022 01:52 PM
Diana Dahlberg
1 Month Realty - Pleasant Prairie, WI
Real Estate in Kenosha, WI since 1994 262-308-3563

Only time will tell how this will actually affect us in real estate, and as general consumers ... Most people I talk with everyday have so many questions, fears and concerns.  No one has a crystal ball ... Thank you for your post and sharing the information -- a good read for sure!

Jul 27, 2022 08:07 PM
John Meussner

Thanks Diana!

Jul 28, 2022 01:53 PM
Jeff Dowler, CRS
eXp Realty of California, Inc. - Carlsbad, CA
The Southern California Relocation Dude

John:

This was an excellent and easy-to-understand overview of the Fed hike and what it means. Good way to dispel some myths!

Jeff

Jul 27, 2022 08:36 PM
John Meussner

Thanks Jeff, appreciate it!

Jul 28, 2022 01:53 PM
Nina Hollander, Broker
Coldwell Banker Realty - Charlotte, NC
Your Greater Charlotte Realtor

A terrific explanation, John. And I guess we will soon see just what this rate hike does to the real estate markets.

Jul 28, 2022 04:35 AM
John Meussner

We'll see what happens in the coming months, likely to be a bumpy ride!

Jul 28, 2022 01:53 PM
Dave Halpern
Dave Halpern Real Estate Agent, Inc., Louisville, KY (502) 664-7827 - Louisville, KY
Louisville Short Sale Expert

The inflation was caused by the administration's war on oil, thereby hurting the poor and middle class.

Raising interest rates does not lower the cost of gasoline, but it does further hurt the poor and middle class.

Stop attacking the oil industry. That will lower the cost of gasoline, lower inflation and reduce the need for interest rate hikes.

Jul 28, 2022 05:09 AM
John Meussner

I'd argue it goes well beyond the cost of oil & gas.  Inflation was ticking up well before gas prices surged, but lowered fuel costs will certainly help!

Jul 28, 2022 01:54 PM
Eileen Burns 954.483.3912
Trans State Commercial Realty Inc. - Fort Lauderdale, FL
FLorida Real Estate Connector

Great explanation John Meussner Those with excellent credit and low ratios will continue to purchase.  Those who are stretching the limit will remain renters or lose the home if they cant afford the rate adjustments

Jul 28, 2022 09:48 AM
John Meussner

Thanks for the comment Eileen - hopefully falling rates will help more folks afford homes this year!

Aug 01, 2022 06:23 PM
Kathy Streib
Cypress, TX
Home Stager/Redesign

John - what an excellent explanation of the fed rate hike and what it means for all of us. I've tried to read what is going on but I'm not an economist. Your explanation is written so we can understand what will happen. 

Jul 29, 2022 08:08 PM
John Meussner

Thank you Kathy : )

Aug 01, 2022 06:23 PM
Chris Ann Cleland
Long and Foster Real Estate - Gainesville, VA
Associate Broker, Bristow, VA

Very informative.  Your insights are always welcome.

Jul 30, 2022 09:16 AM
John Meussner

Appreciate it Chris Ann, thank you : )

Aug 01, 2022 06:23 PM
Chris Ann Cleland
Long and Foster Real Estate - Gainesville, VA
Associate Broker, Bristow, VA

Featured in the group:  BARTENDER, MAKE IT A DOUBLE.

Jul 30, 2022 09:16 AM
Kathy Streib
Cypress, TX
Home Stager/Redesign

Jul 30, 2022 06:47 PM
Wayne Martin
Wayne M Martin - Oswego, IL
Real Estate Broker - Retired

Good morning John. As rates rise, professionals have to be ready to explain the realities of the increase to both buyers and sellers. Enjoy your day.

Jul 31, 2022 05:00 AM
John Meussner

It's a complicated world, people certainly need guidance and expertise.

Aug 01, 2022 06:24 PM
Grant Schneider
Performance Development Strategies - Armonk, NY
Your Coach Helping You Create Successful Outcomes

Hi John - It certainly is complicated to explain to most people and psychology has so much to do with consumer confidence.

Jul 31, 2022 06:34 AM
John Meussner

The psyche is a big wildcard for me now - the data supports higher home prices, but if buyers collectively decide not to buy, theres only one way prices can go!

Aug 01, 2022 06:24 PM
Nick Vandekar, 610-203-4543
Realty ONE Group Advocates 484-237-2055 - Downingtown, PA
Selling the Main Line & Chester County

Thanks for a concise explanation of how fed rate hikes affect the market for mortgage rates, helocs and all other types of borrowing too.

Aug 01, 2022 01:40 PM
John Meussner

Thank you Nick, appreciate you stopping by!

Aug 01, 2022 06:24 PM
John Juarez
The Medford Real Estate Team - Fremont, CA
ePRO, SRES, GRI, PMN

Rates are down a bit. That is good, We shall see where mortgage rates go from here.

Aug 02, 2022 05:29 PM
Kris Collis, Associate Broker
Smart Way America Realty - East Stroudsburg, PA
Professional Results you Expect 570-801-5525

John, thanks for the clear description of  relationship between fed rate hikes and mortgage rates. I'm sure many borrowers are finding your expertise really helpful right now. 

Aug 06, 2022 12:12 AM
Dennis Neal
RE/MAX, Big Bear - Big Bear Lake, CA
Your Home Sold in 21 Days or We Sell It For Free

I just ran across this older post and it could be rewritten today with much the same result. The Fed rate hikes are creating pain and uncertainty for many.

Sep 03, 2023 05:34 PM
John Meussner

Thanks Dennis Neal , appreciate it!  If you'd like real time info like this on  a weekly basis, message me and I can get you signed up for our Friday newsletter : )

Sep 05, 2023 10:08 AM