November 2022 Interest Rate Update
As you may have heard, the Fed met again last week and raised the federal funds rate by another 0.75 points. This latest hike marks the fourth consecutive 0.75-point increase and the sixth increase overall this year, bringing the rate from under 1% at the end of last year when rates first started to increase to within their desired range of 3.7%-4% now.
With the constant increases over the last year, you may have a lot of questions as to why this is happening and what it means for the housing market. We’re going to break it down for you here in the hopes of adding clarity and helping you in your decision making going forward.
How Does the Federal Funds Rate Affect Mortgage Rates?
As a refresher, it’s important to know that the Fed doesn’t set mortgage rates. They adjust the federal funds rate or the interest rate at which banks lend reserve funds to other banks overnight (more or less). While this rate doesn’t directly affect mortgage rates, banks closely watch the actions of the central bank and raise or lower their mortgage rates accordingly.
Why Does the Interest Rate Keep Increasing?
The rate increases are meant to cool down the economy and balance out soaring inflation that spiked as a result of the pandemic. You may recall shortly after the pandemic, home prices were at an all time high while inventory was at an all time low, creating a dramatic seller’s market among other things.
When Will Interest Rates Stop Increasing?
While no one can say for sure, language in the central bank’s latest statement hints that a slowdown in rate increases may soon be coming.
What Does it Mean for the Housing Market?
As a result of these rate increases, we’re seeing a more balanced housing market. Listing inventory in the DMV is up almost 20%, sales are down 30%, and home prices have hit their peak and have come down a bit in most markets.
Homes that are priced well and upgraded (or priced below market to compensate) are still selling in about 30 days or less. However, with more competition on the market now than ever, the higher end homes, condos with a high condo fee, or dated, overpriced properties, especially outside the Beltway, are often sitting and having to reduce before getting an offer.
While some have characterized it as all bad, the market we’re coming into is actually within a normal range. Things are slowing down, yes, but that change doesn’t necessarily signify a crash.
What Does it Mean for Buyers?
As far as buyers are concerned, rates are obviously high right now; there’s no getting around that. However, life changes don’t always coincide with changes in the market, so despite the climbing rates, you still may need to make a move because of a job change, new baby, or other life events. In such a case, it’s important to know, as stated above, that inventory is up and prices are coming down, so you will have more options at your disposal should you choose to move now. With this, you’ll also have more leeway to add in important contingencies, like home inspection and appraisal contingencies among others, that you may not have been able to add in previously when competition was as cutthroat as it was. Additionally, there are numerous interest rate programs that will allow you to refinance in the future when rates come back down.
With all of this, we still think it’s a great time to move forward with a home, apartment, or condo purchase.
What Does it Mean for Sellers?
Given the rising competition amongst sellers, it’s extremely important now that sellers price their homes appropriately and make any necessary changes to make themselves stand out to buyers and get their home sold.
What Else?
If you find yourself with any lingering questions about the status of the rate increases, what it means for the market, or how to move forward yourself as a buyer or seller, please don’t hesitate to reach out via our website or by phone at (703) 674-1777. We offer free consultations with absolutely no obligation or strings attached!
