Homebuyers Brace for Higher Interest Rates

An increase in the Fed rate should result in increased mortgage rates for homebuyers.The Fed has served a blow to homebuyers by announcing an increase of 25 basis points, or .25%, to the federal funds rate, a key overnight bank lending rate. Although the Fed rate and mortgage rates move independently, the same market factors drive the rate increases and cuts.Inflation, job growth and the overall economic outlook impacts lenders and how they set rates. A bump in the Fed rate should translate into an increase in mortgage rates. But availability and affordability may still be obstacles when shopping for a home.Factors squeezing buyersMortgage application volume decreased 1.8% from one week earlier for the week ending July 21st, according to the Mortgage Bankers Association.Homebuyers continue to be challenged by low inventory levels and higher mortgage interest rates. Single-family housing starts had the slowest first quarter since 2019, and with many existing homeowners locking in low mortgage rates, inventory will remain a challenge as fewer people list homes. A strong job market has led to fewer forced sales that usually accompany unemployment. These are factors you should watch during peak moving season.Peak moving season runs from April through September, accounting for almost 80% of all moves. Better weather and trying to get kids settled before the new school year begins have made June, July and August the most popular months to resettle. Moving “offseason” may be the way to go if the competition is keeping you out of your desired neighborhood or school district.The inflation is receding, but rates are still risingSlowing inflation and a small increase in mortgage rates is a good news, bad news situation. The average interest rate for 30-year fixed-rate mortgages increased by .46 basis points to 7.23%. Inflation slowed but housing continued to be a major contributor.Buying a home can be both terrifying and exhilarating. It’s probably the biggest purchase you will make in your lifetime. Market factors will largely determine what house you can buy, but not what kind of home you create.

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