MELANIE KISHK
NEWS THAT THE FEDERAL RESERVE BANK (THE FED) RAISED THE PRIME LENDING RATE AGAIN HAS LEFT MANY HOMEOWNERS ASKING HOW THIS WILL AFFECT MORTGAGE RATES IN THE NEAR TERM. MANY PEOPLE MISTAKENLY BELIEVE THERE IS A DIRECT CORRELATION BETWEEN THE TWO, BUT THAT’S NOT NECESSARILY TRUE. SO LET’S EXAMINE THE FACTS.
The FED meets several times yearly to address the country’s economic picture and raise or lower interest rates if necessary. Rates may go up or down depending on inflation or the overall outlook for the economy. With inflation on the rise, rates have steadily adjusted throughout this year.
When interest rates go up, some types of loans are immediately affected. Unlike other types of loans—such as credit cards, home equity lines of credit, and car loans—mortgage rates do not automatically increase. This is because mortgage rates are generally calculated by forecasting economic trends and predicting whether more people can afford a home. The prime lending rate is just one of the factors accounted for, so it takes a while for the market to react to the FED’s announcements.
The spike in mortgage rates this year has primarily been the result of the FED increasing the rate of interest banks use to lend to each other. When these rates go up, the rise tends to drive up the rate of the 10 year treasury note, a better gauge for how mortgage rates react.
What does this mean for people who would like to buy or sell a home in the current market? First, it leaves them with two basic options: wait and see what happens in the future, or continue their plans to buy or sell a house. Since no one, not even economic forecasters, knows what the future holds, waiting until just the right moment may mean waiting forever. The best approach is to pay attention to the news and long-range forecasts, but don’t let the information keep you from following through with your plans, particularly if you’re ready to find your next home.
You might ask yourself how the recent change in housing inventory affects all of this. It is true that in some markets around the country, housing inventory is down from last year. As a result, some people are holding on to properties, waiting to see what happens, while others are renovating houses and hoping for higher prices when the time comes to sell. Inventories are not down across the board, however. On the contrary, some markets have seen an increase in the number of homes available, making it an excellent time to start looking.
So, here’s the bottom line: In a fluctuating market, don’t allow yourself to get trapped between panic and paralysis. Instead, keep moving forward with your plans. Talk to your local realtor about market trends and inventories. Listen to their advice and keep doing your research, as well.
Remember, inventories and market forecasts have always been, and will continue to be moving targets. Qualified realtors and lenders know this and will help guide you in the right direction. Work with the professionals you know and trust, because one day you will find your dream home. When you do, be ready to make your move.
Century 21’s Melanie Kishk is a full-time Broker/Owner. Her team consists of top performing real estate agents serving Brooklyn, New York and the surrounding communities.
