May 03 2023

Homebuyers want to know: Why a 3rd Fed hike?

fed rate
fed rate

Once again, we’re facing another Fed rate increase. In fact, it’s the third hike this year.

In 2023, the Federal Reserve has continued working to control inflation. The Fed has done this by increasing its benchmark rate—most recently, for the third time this year. Thankfully, these hikes are beginning to pay off. Economists speculate that this could be the last Fed rate hike we see for the foreseeable future.*

Of course, there are no guarantees.*

But what we do know is this: A Fed rate hike doesn’t have a direct impact on mortgage rates. In fact, if you’re thinking about buying a house, the Federal Reserve’s efforts to calm inflation may be welcome news to you. Mortgage rates typically rise in times of inflation. If inflation cools, mortgage rates are likely to follow suit.

No one can predict what mortgage rates will do. But some housing authorities expect rates to moderate and possibly drop in the year ahead.

The ‘new normal’ is better than it was before

Understandably, today’s homebuyers are concerned about both rising mortgage rates and inflation. Many are questioning another Fed rate hike.

Though mortgage rates have risen over the past year, it’s important to remember that they’re coming up from historic lows—when rates hit rock bottom during the pandemic.** This occurred when extraordinary measures were taken to keep the economy afloat.  

Two years ago, all we could hope for was a return to normal. That’s exactly what’s happening with mortgage rates right now. Showing activity has also bounced back to exceed pre-pandemic levels.

Similarly, the “new normal” for mortgage rates is better than what was seen prior to the pandemic. Current rates have risen, but they’re still below the 50-year average.** They’re also dramatically lower than the peaks seen in the early 1980s.**

“Incoming data suggest inflation remains well above the desired level but showing signs of deceleration. These trends, coupled with tight labor markets, are creating increased optimism among prospective homebuyers as the housing market hits its peak in the spring and summer,” Sam Khater, Freddie Mac’s Chief Economist, says.

Some lenders, like Academy Mortgage, have weathered rate changes over several decades. We credit our 35 years of experience as a leading mortgage lender, as well as our commitment to sustainable lending, to helping us navigate these industry cycles. Our Loan Officers have the industry knowledge, experience, and ability to customize loans based on individual needs, even when rates are higher than they have been.

And while inflation can put pressure on mortgage rates, it’s not the only factor. Location, loan amount, credit score, down payment, loan program, loan type, and loan term can all impact the mortgage rate you qualify for. Not all homebuyers will receive the same rate. Working with a Loan Officer to find an affordable mortgage program can potentially save you more than focusing solely on securing a lower rate.

For customized care: Contact an Academy Loan Officer near you.

If you’re thinking about buying a house, it might also help to know that:

  • Homeownership is historically considered a reliable hedge against inflation. In times of inflation, all prices rise. Homeownership helps hedge against the rising cost of rent by allowing you to secure your monthly housing expense for the life of your mortgage. (Note that property taxes and other monthly housing costs may fluctuate.)
  • Home price growth is moderating. Rising mortgage rates have helped cool what was a red-hot market. This has also caused home price appreciation to slow down. While some authorities believe home prices may depreciate slightly over the next year, others call for continued appreciation, just at a slower pace. Less rapid appreciation may mean more homes remain available in your price range.
  • Homeownership can still help you build prosperity. Though home price growth has slowed, prices aren’t expected to plummet. Homeownership can still be a tool used to reap long-term financial benefits. Even buying a starter home—such as an older house or a condo—can make it possible to enter the market and begin building prosperity.

Right now, recent rate dips related to lower levels of inflation look encouraging. “With inflation moving closer to the Fed's target, mortgage rates are expected to decrease further in the coming months… these falling rates create opportunities for many buyers. A lower mortgage rate brings down the monthly payment for a home loan,” Nadia Evangelou, National Association of REALTORS® Senior Economist, says.

Is now a good time to buy a house?

If you’re a homebuyer who’s prepared to purchase, the answer is probably. Buying a home can help you hedge inflation, while building your prosperity at the same time. If rates fall in the future, you have the option to refinance. Contact your local Academy Loan Officer for customized guidance.

The material provided is for informational and educational proposes only. Although the material is deemed to be accurate and reliable, we do not make any representation as to its accuracy or completeness as a result, there is no guarantee it is without errors. Please consult a trusted professional as personal circumstances may vary. All mortgage products are subject to credit and property approval. Not all products are available in all states or for all amounts. Additional conditions, qualifications, and restrictions may apply. Please contact Academy Mortgage for more information. MAC424-1486515.