To help curb inflation, the Federal Reserve announced this month a rate hike, first of possibly several this year. Quoted from an article published March 16, 2022 on 9 News, “The central bank’s policymakers expect inflation to remain elevated and to end 2022 at 4.3%, according to updated quarterly projections they released Wednesday. That’s far above the Fed’s 2% annual target. The officials also now forecast much slower economic growth this year, of 2.8%, down from its 4% estimate in December.”
Interest Rate Hike Means Less Buying Power
What does this mean for the consumer? Probably, less buying power, as Colorado, and other states, continue to set records on home prices. Most potential buyers have a purchase price budget and this rate hike means they will be surpassing the confines of that budget. They will have to adjust the criteria they based that budget on, and possibly decide the particular market is above their borrowing capabilities.
The Feds hope this rate hike will achieve the goal of taming the inflation, now hit hard with prices rising on gas and other essential commodities. Another goal is to curb buying frenzy and allow inventory to peak, creating more of a balance.
Interest rates are a powerful tool to curb purchasing power and, “A 1% point drop in rates — such as from 4.5% to 3.5% — leads to a monthly savings of $167 on a $200,000 mortgage,” says Lawrence Yun, chief economist for the National Association of Realtors.
Selling your home?
Make sure potential buyer’s preapproval is based on current interest rates. Sellers will also will have to take a more serious approach to offers based on preapproval. In the end the sale might go to someone in a higher income bracket.
For now, the rates are as good as they are going to be for a while. In a Fortune article published March 23, 2022, “The real estate industry knew higher mortgage rates were coming—but they didn’t expect it to be this high. Indeed, heading into the year, Fannie Mae predicted that the 30-year fixed mortgage rate would average 3.3% in 2022 and 3.5% in 2023.
Industry insiders tell Fortune this swift move up in mortgage rates amounts to an economic shock. After all, just look at what it’s doing to mortgage payments. A borrower who took on a $500,000 mortgage at a 3.11% rate would get a monthly mortgage payment of $2,138. At a 4.16% rate, that jumps to $2,433. If rates this week do cross 4.5%, that payment soars to $2,533.”
The rising rates might eventually bring the market down to a healthier place, and that’s the results the Feds are projecting. That is why if you are buying or selling you need to contact Katchen Company, Denver urban real estate experts to help you with any questions related to the rate hike.
Katchen Company specialists are often asked why they do what they do. The answer is simply because they love being able to assist clients with the challenges that real estate transactions present. They are an essential partner in making complex real estate transactions. Clients trust their solid dependability, insight, and expertise to move them forward into the ever-changing future.