Fed Raises Rates - What that means for Real Estate and Mortgages

The big news: Yesterday the Fed raised interest rates by a quarter point, the first time since July 2023.

The bad news: they HAD to do this bc inflation keeps going up, and a big part of that is oil prices. It cost me $80 to fill up my 4runner yesterday and here in Texas we have pretty cheap gas!  Most people are expecting more rate hikes to come.

The good news: when it comes to mortgage rates, this hike was already baked in*. Since the market knew the Fed was likely to raise rates, mortgage rates had already started moving up, and mortgage rates didn’t actually move after this rate hike. As a reminder, the mortgage rates we use to buy homes aren't set by the Fed, they just move up and down following something else called the 10-year note.

More semi-good news: if a mortgage rate goes up 0.25% on a $500k loan, that monthly payment only goes up ~ $84.

Some not-great news: mortgage rates for buying a home are ~ 7% now.

A note on the * above:  in financial markets, news is often “priced in”. What that means is when news comes out, it will already be reflected in the price of things.  Like if the market expects that something will happen to cause oil to go up, oil will go up even before that thing happens.  The big moves happen when something UNexpected happens.  Like if no one expected the fed to raise, then it did, you’d have a lot of movement.

PS.  Did you know I used to be a stock trader in NYC?  At this point it feels like a past life, but we used to sit there every day waiting for events like fed announcements to happen, then be ready to slam keys depending on what happened.  Fun times!