Fed Approves Record Rate Hike

As I've been telling you all, the Federal Reserve is going to continue to increase rates this year and boy did they ever last week. They had the highest interest rate hike that they've had in over 28 years of 0.75%. They did this because of a consumer price index and inflation numbers that they saw just a couple of weeks ago. 

After the Fed made this announcement on Wednesday, interest rates actually started to decrease from the high. The high actually got on Monday and Tuesday as high as in the mid 6% ranges but after Wednesday and then by the end of the week, they started to come down into the high 5%. The reason for that is the market already priced in that rate increase and they also priced in a little bit of fear, just not knowing what the Fed was going to do. As with everything in the market, the market overreacted a little bit. 

The other thing, too, is the rates that were raised was the federal funds rate, which is a little bit different. This is the rate at which banks loan money to each other, whereas the 30 year mortgage rates are actually tied more directly to the ten year treasury rate.

Moving forward, the Fed is actually signaling that they're going to continue to increase federal fund rates over the next several months and most likely over the next 12 months. So with that, what you're going to likely see continued is volatility in the marketplace. The market is going to try to predict where the Fed is going so interest rates will likely rise and then come back down as the market tries to predict where those rates are going to land.

We also have quantitative tightening where the Fed is going to be selling mortgage backed securities, which is also going to put pressure on mortgage rates. We're likely going to continue to see an increase in mortgage interest rates over the next 12 months. So my recommendation in this market is to go ahead and try to lock in your home price as quickly as possible because it's likely that interest rates are going to continue to rise while we don't see home values coming down, especially in those competitive price points above the $250,000+ price range here in the Huntsville area.

So if it's me, what I'm doing is I'm buying my home as quickly as possible and I'm locking in that interest rate. I'm probably not going to pay a lot of points to buy that interest rate down because it's very likely that these rates will be cyclical and we'll see lower rates over the next probably two to three years with an opportunity to refinance is what we're predicting right now.

Posted by Matt Curtis on


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