What Do The Fed Rate Increases Mean For Mortgages?

Posted by Richard on September 8, 2022

Mortgage rates have been up and down following the rate increases by the Federal Reserve, beginning with the one in March this year.

Federal Reserve rate increases are aimed at controlling inflation, and while they have affected mortgage rates, the Fed actions and mortgage rates haven’t shadowed each other. Mortgage rates had a soft response to the Fed’s rate increase in June, for example. Mortgage rates are still very affordable and increases have been modest. The 47-year historical average for mortgage rates is 8.1 percent. Today’s rates are well below this.

The key idea to remember is that a fixed-rate mortgage can be a hedge against inflation. That’s important in today’s economy, when inflation is cutting into budgets. A mortgage at today’s rates remains the same for the term of the loan. That locks in predictable housing costs not affected by inflation. While renters may see rates rise in coming years, homeowners won’t. Even if rates return to the extra-low rates of 2020 and 2021, homeowners still are not locked in and they can refinance.

Meanwhile, the housing market generally is softening somewhat, with well-priced homes selling briskly and over-priced homes reducing their prices somewhat.

Mortgage rates today are still very reasonable. At the same time, there is still high demand in the housing market. Although inventories are below normal, if you find a home you like, it’s still a fantastic time to buy.