You might consider raising homebuying costs an odd way to wrangle control over runaway price increases, but here's how it works.
The Federal Reserve yanked a short-term interest rate higher this week, making it more expensive to borrow money to buy a home or fix it up.The... This article is reprinted by permission from NerdWallet.
“The speeches that were happening in recent weeks were all about a much more hawkish stance, and that’s really where this drive in interest rates happened,” says Selma Hepp, deputy chief economist for CoreLogic, a property information and analytics provider. A higher federal funds rate will directly increase rates charged on adjustable-rate home equity lines of credit. They will rise 0.5% within a billing cycle or two. These loans, also called HELOCs, are often used to pay for home renovations.
How expensive mortgages shrink inflation Typically, the Fed raises the federal funds rate 0.25% at a time. But no one would call today’s economy typical. The Consumer Price Index, a gauge of inflation, hit 8.5% in March, its highest level in more than 40 years. The Fed is demonstrating its seriousness about reeling in inflation by hoisting the federal funds rate by twice the usual increment.
Take the hypothetical example of someone who can afford $1,700 a month for mortgage principal and interest, and who began shopping for a house in February. Back then, the 30-year fixed-rate mortgage averaged around 4%. Let’s say our house hunter finally made a successful offer in late April, when the 30-year mortgage had risen to around 5.25%.
Home sellers must keep in mind that higher mortgage rates reduce affordability. It might be worthwhile to check whether buyers’ preapprovals are based on current mortgage rates instead of the lower rates of a few weeks ago.
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