FEDERAL RESERVE HIKES INTEREST RATES AGAIN, BUT IMPACT ON MORTGAGES EXPECTED TO BE NEGLIGIBLE, LOCAL REALTORS’ LEADER SAYS

East County News Service

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July 31, 2023 (San Diego) --  On Wednesday, July 26, the Federal Reserve again decided to raise interest rates for the 11th time in 17 months in a continuing effort to counter inflation. But some experts believe this may be the last of interest rates hikes.  The San Diego Association of Realtors indicates it is “encouraged by the expectation that interest rates will likely begin to drop soon and continues to encourage buyers to remain in the home buying market in the short term,” according to an SDAR press release.

“Though the Federal Reserve’s interest rate hikes are not optimal for buyers and sellers in the real estate industry, we believe that the eventual impact on mortgage rates will be minor,” says San Diego Association of Realtors President Frank Powell. “The property market in San Diego County will be marginally impacted, specifically due to the anticipation that this will be one of the final hikes for the year. We want to continue to urge individuals to remain in the market for housing, as waiting for interest rates to drop in the future is a financially risky strategy,” Powell added. “Home values on average see a 4% appreciation in value, and with the option to refinance, waiting for rates to drop risks the chance of losing out on a dream home.”

Even though the hike bumped interest rates from 5.1% to 5.3%, the actual impact on the mortgage rates should be minor, at most, he predicts because while the federal reserve’s interest rates do play an important role in determining mortgage rates, they are independent of one another, and mortgage rates are created from a combination of financial markets and individual application details.

The continual hike of interest rates revolves around Federal Reserve Chairman Jerome Powell’s quest to lower U.S. inflation to the target rate of 2%. Current inflation stands at 3%, down from the high mark last year of 9.1%. Core inflation, which excludes unpredictable energy and food prices, sits at a higher 4.8%. Powell has indicated that the Federal Open Market Committee is monitoring conditions.Though earlier he had announced an anticipated two rate hikes, at a press conference last week he indicated rates may hold steady in September if conditions continue to stabilize.

Consumer prices have declined overall for 12 straight months, with gas prices tumbling to $3.54 a gallon from $4.66 a year ago, according to AAA..  Unemployment has also fallen to just 3.5%, down from 4.9% in June 2021, another sign that the economy is improving.