Last week, the Federal Reserve announced another interest rate hike – marking the fifth time it’s done so this year. Effective September 21st, the federal funds rate jumped 75 additional basis points, which caused mortgage rates to increase to their highest point in over a decade. According to Bankrate, the national average is now hovering around 6.5% for a traditional 30-year fixed rate mortgage. During the majority of 2020 and 2021, rates for the same 30-year note were at 3%. Potential homebuyers are now being forced out of the market. As the cost of borrowing money increases, the buying power for homeowners decreases significantly. For each 1% increase in rates, homebuyers face a $10,000 decrease in buying power. This means that a homeowner considering a $250,000 home last year would only be able to afford a $210,000 home now. During the COVID-19 pandemic, the Fed lowered rates to historic lows and by 150 basis points. While the Fed doesn’t directly change the interest rates of mortgages specifically, the 10-year Treasury bond they do change is tied to the entire financial system. Anytime this rate is changed it can have a ripple effect across all lending institutions. So far this year, the Fed has increased the base rate by 300 basis points.
Surprisingly, the Tri-Cities real estate market hasn’t seen a dramatic shift due to rate increases. Our local region has been called out numerous times over the past two years for being one of the hottest in the nation. However, we have seen a cooling of sorts. Homes are sitting on the market longer and more homes are taking price reductions in order to entice potential homebuyers. We are likely months away from feeling the full effects of the Fed’s fight against inflation.
Curious about how you can stay buy in today’s crazy market? Contact us today for a personalized homebuyer evaluation with one of our licensed REALTORS®.