Blog

Sept 21, 2022 Fed Rate Hike

The Fed has once again raised their Fed funds rate by an expected .75 percent.  As we explained in previous posts about Fed rate hikes, this is not a direct increase to mortgage rates, but the Fed’s move does have an impact on the mortgage marketplace and the broader economy.

The most recent rate hike brings the Fed’s target funds rate (the rate which banks borrower from the Fed and each other) to a range of 3-3.25%, a full 3% higher than 0-.25% range we saw prior to inflation kicking in late last year.

This also moves the “prime rate” (a very important metric to the overall economy) up to 6.25%, also 3% higher than last year’s lows as the prime rate, unlike mortgage rates, does more in direct proportion to the fed funds rate.

 

What does this mean for mortgages and home financing?

The Fed’s moves are closely watched by mortgage bond traders (and mortgage bonds, or mortgage backed securities, are what directly influence our rates), and just as important as the Fed’s move on rates is their commentary after announcing their rate decision.  The market reaction to this Fed move was mortgage interest rates moving initially higher (opposite to the market reaction of the last Fed rate hike of the same amount back in June!), as the market’s seem to doubt the Fed’s ability to reign in stubborn inflation.

Historically, though, Fed funds rate increases are usually followed (sometimes quickly) by recession, which historically has brought rates back down to earth.  While no one has a crystal ball, with pending recession grabbing more headlines, it seems like history may repeat itself, but that remains to be seen as the Fed’s rate hike will typically take a few months to be absorbed and show it’s impacts in the broader economy.

 

As the Fed funds rate increases, recession typically follows (indicated by the gray areas)

 

What Does The Fed Rate Hike Mean For the Broader Economy?

With a Fed rate hike, the ‘prime’ rate increases, and many household financial products are tied to prime, most often credit cards and home equity lines of credit (HELOCs).  So these products will get more expensive and will likely be the biggest direct impact households will immediately see & feel.

 

Higher borrower costs tend to mean less borrowing and a slowdown to the broader economy, so over time the Fed rate hikes should reduce inflation, which is a good thing!  The negative side of the equation is that while reducing inflation, the economy usually slows and often ends up in recession.  With inflation hitting so many households in the wallet this year, though, the Fed’s primary concern is to reign in inflation and lower costs for US households.  If their actions do cause a recession and a spike in unemployment numbers, their focus will shift, but for now, we can expect the Fed funds rate to continue to increase and remain at higher levels until we start seeing inflation numbers come down.

 

Is Housing a Concern?

Housing is certainly seeing a shift in 2022 from the insanity of quickly appreciating values in 2020-2021, but inventory is still below historical levels, so the market has some room to absorb reduced demand without a huge impact.  Again, while no one has a crystal ball, the numbers seem to support strength in the housing market, even if we do see a slowing in appreciation or some slight depreciation in some markets.  The greater concern for the housing market is interest rates, which have hurt affordability in housing, as even with rising prices, low rates can keep housing payments down.  If we see rates drop as inflation comes down, it could bring more home buyers to market.

 

The Fed has states they plan to continue to raise rates until inflation shows sustained improvements, and they have made fighting inflation their primary focus for the short term.  What the overall impacts will be and the direction of the economy as a result of their actions remain to be seen, we’ll be sure to provide up to date info on the state of housing, rates, and how the Fed’s actions are impacting our markets.

Christie Mitsumura NMLS #1396234

Licensed by The Department of Financial Protection and Innovation under the California Residential Mortgage Lending Act. NMLS# 1141
MasonMac Corporate

Christie Mitsumura - Mason McDuffie Mortgage Corp.

Cell: (808) 276-6855

Email: cmitsumura@masonmac.com

Satellite Office:
67-1185 Mamalahoa Highway
Unit 7F
Kamuela, HI 96743

Licensing:

Not a commitment to lend. Rates and terms subject to change without notice. Licensed by the California Department of Financial Protection and Innovation under the California Residential Mortgage Act No. 4130968; AL #22653; AR #32700; AZ #1015403; Colorado regulated by the Division of Real Estate; DE #019623; FL #MLD819; Georgia Residential Mortgage Licensee #20924; ID #MBL-5861; Kansas Licensed Mortgage Company #MC.0025601; KY: #MC701698; MD: #16927; Mississippi Licensed Mortgage Company Licensed by the Mississippi Department of Banking and Consumer Finance;Licensed by the Minnesota DOC #MN-MO-1141; Licensed by the NJ Department of Banking and Insurance; NC: L-152867; NV: #3681; OK: #ML012358; Licensed by the Oregon Division of Financial Regulation #ML-3808; PA: #37008; TN: #112513; Licensed by the Virginia State Corporation Commission #MC-5579, WV: #ML-31523/MB31759. NMLS #1141. www.nmlsconsumeraccess.org 

Follow us on Social Media