Signals more hikes in 2023
The Federal Reserve raised rates by 25 basis points, or 0.25 percentage point, as was widely expected. The Fed’s policy rate is now set to a range of 4.5 to 4.75 percent. Federal Reserve Chair Jerome Powell then held a news conference, in which he said that the economy’s disinflationary process had started. To be sure, Powell added that it’s premature to declare victory against inflation. He further said that the “victory” would still require its benchmark overnight interest rate to be increased further and remain elevated at least through 2023.
“We can now say for the first time that the disinflationary process has started,” Powell told reporters after the end of the Fed’s latest two-day policy meeting, with goods prices slowing, pandemic-related shortages easing, and supply chains getting back to normal. “This is a good thing.” The Fed said in its statement Wednesday that more rate increases are most likely coming.
With rising rates buyers still face headwinds, because mortgage rates are higher than they were at the beginning of 2022. That means homes are less affordable than a year ago. For instance, a 30-year mortgage at a rate of 3% — which was pretty normal in 2020 and 2021 — on a $350,000 home with a 20% down payment yields a monthly principal-and-interest payment of about $1,180.
However, a rate of 6.25% bumps that to $1,724. When higher rates are combined with rising home prices, it’s easier to get priced out of the market, especially for first-time buyers.
Given how much interest rates can change the math of your homebuying budget, make sure to keep your mortgage preapproval up to date. You don’t want to make an offer on a home only to find out that it’s out of your price range at the current interest rate. You might also consider buying a mortgage rate lock to ensure your rate doesn’t increase before your home purchase closes.
Lets connect if you have questions or simply want to discuss this changing rate environment and how it affects your specific situation.
