The real estate market has been reeling for more than a year as mortgage lending rates soar ever higher. Unfortunately, the writing on the wall is clear: another rate hike is likely imminent. This is because the Federal Reserve is expected to raise interest rates again in July, in an effort to combat inflation. This will likely lead to another increase in mortgage rates, which could make it more expensive to buy a home. Let’s take a look at what’s likely to be coming down the pike.
According to a recent article in CNBC, most economists expect the Fed to raise rates by 0.75 percentage points at its meeting on July 26-27. This would be the largest rate hike since 1994.
The Fed, of course, is considering raising rates yet again in an effort to cool the economy and bring inflation under control. Inflation is currently at a 40-year high, and the Fed is worried that it could become entrenched if it is not addressed.
Yet raising interest rates has always been a blunt instrument, and it is not without its risks. Higher interest rates can slow economic growth and lead to job losses. They can also make it more expensive to borrow money for things like cars and credit cards. For homebuyers, the biggest impact of higher interest rates will be on the cost of mortgages. The average 30-year fixed-rate mortgage is now at 5.78%, the highest it has been since 2008. This means that a buyer who borrows $300,000 will pay about $1,600 more per year in mortgage payments.
The CNBC article also mentions that there are a few things that homebuyers can do to prepare for higher mortgage rates. One is to make sure they have a good credit score. A higher credit score will qualify them for a lower interest rate. Homebuyers should also be prepared to put down a larger down payment. A larger down payment will lower their monthly mortgage payments and make them less vulnerable to rising interest rates. Finally, homebuyers should shop around for the best mortgage rates. There are a number of different lenders out there, and some will offer lower rates than others.
In addition to the points made in the CNBC article, there are a few other things to keep in mind about the impact of higher mortgage rates. First, they will have a greater impact on borrowers with lower credit scores. Second, they will also have a greater impact on borrowers who are taking out larger loans. Finally, it is important to remember that the Fed is not raising rates in a vacuum. Other factors, such as the ongoing war in Ukraine and the supply chain disruptions caused by the COVID-19 pandemic, are also contributing to inflation. This means that it is difficult to predict how high interest rates will go or how long they will stay elevated.
Overall, the Fed's decision to raise interest rates is a sign that the economy is getting stronger, which is advantageous over time - if not right now. That’s because rate hikes are also a reminder that higher interest rates can have a negative impact on the housing market. Homebuyers should be prepared for higher mortgage rates and should take steps to protect themselves from the impact of rising rates.