As expected, the Fed raised the Federal Funds rate by 75 bps. So the rate that banks borrow overnight is now 3.75-4%. In the beginning of this year it was 0-.25%. The mortgage market already had priced this increase into mortgage rates and was more interested in the comments made after the meeting.
The initial statement was that the Fed hinted at a change of policy with the Fed taking the lag of tightening’s impact on economic activity into account. That was what investor’s were hoping they would do and it would mean less rate increases going forward. The immediate reaction in the bond market was positive – for about an hour! Then the Fed Chairman commented that rates will rise higher than expected to combat surging prices, dimming Wall Street’s hopes that a slower pace of interest rate hikes could actually mean that interest rates will soon peak. As soon as the Fed Chairman made that statement, the bond market immediately reacted negatively. We saw an interest rate reprice for the worse after that announcement.
The Fed Chairman also noted that a “soft landing” for the economy may not happen – which is what many Americans already believed was going to happen. Many already think we are in a recession.
So what happens next? More than likely rates will stay steady to increase. There will be more comments as investors go over the Fed’s comments and try to decide what they are going to do in December. Right now most expect a rate increase of at least .50, but it could be another .75. The reports coming out this month regarding inflation will give a better indication of the Fed will do.
What does this mean for you as a homebuyer? Talk to your loan officer about options. We are offering a 3-2-1 or a 2-1 temporary buydown – meaning your rate is lower for the first year or two and it’s paid for by the seller. It can help you offset the higher payment for the first year or two. Expect that rates will decrease in the next year or two and you may be able to refinance to a lower rate. Also remember that in many cases, you are able to negotiate more now than you were a few months ago, so it can help with seller paid closing costs and possibly a lower sales price.
Leslie Vanderwerf, NMLS ID#335509, CrossCountry Mortgage LLC, An Equal Housing Lender, NMLS#3029 – Email – Website
