The Fed Raised Rates. Should You Stop Looking for a House?

If you saw the headlines yesterday that the Federal Reserve raised interest rates for the first time in more than three years, you may have had an immediate reaction:

Should I put my home search on hold?

If you're already concerned about mortgage rates and affordability, that's an understandable question. But before you decide to wait, there's something important to understand:

The Federal Reserve does not directly set mortgage rates.

And one headline shouldn't make a major financial decision for you.

What Did the Fed Actually Do?

On September 16, the Federal Reserve raised its target range for the federal funds rate by a quarter of a percentage point, bringing it to 3.75%–4.00%.

The federal funds rate is essentially the rate banks charge one another for overnight lending. Changes to it can eventually affect borrowing costs throughout the economy, but it is not the same thing as a mortgage rate.

Mortgage rates are influenced by several factors, including the bond market, Treasury yields, inflation expectations, economic data and what investors believe the Federal Reserve may do next.

That's why mortgage rates don't necessarily move up or down by the same amount—or even in the same direction—when the Fed changes rates.

Mortgage Rates Were Already Moving Before the Fed Announcement

This is where yesterday's headlines can be misleading.

Mortgage rates had already been rising leading up to the Fed meeting. According to Mortgage News Daily, its national 30-year fixed mortgage rate benchmark reached approximately 7.24% on September 16, compared with 6.97% one week earlier.

In other words, the mortgage market didn't suddenly wake up after the Fed announcement and add a quarter point to mortgage rates.

Financial markets are forward-looking. Investors had already been anticipating the possibility of a Fed rate increase and pricing that expectation into the market.

What matters now isn't simply that the Fed raised rates yesterday. Markets will continue reacting to inflation, economic data, Treasury yields and expectations about what the Fed may do next.

So, Should Buyers Put Their Home Search on Hold?

Not necessarily.

The better question is:

What does buying a home look like for me at today's numbers?

That's a conversation to have with a good mortgage lender.

Instead of assuming you can no longer afford to buy—or deciding to wait indefinitely—ask your lender to calculate your payment and purchasing power based on your actual financial situation.

You may discover that the change isn't enough to alter your plans.

Or you may discover that you need to adjust your price range.

Either way, you're making the decision based on real numbers rather than a headline.

Ask Your Lender to Run Different Scenarios

This is something I encourage buyers to do even when interest rates aren't making headlines.

Ask your lender what your monthly principal and interest payment would look like at different interest rates and purchase prices.

For example:

What happens to my payment if the rate changes by 0.25% or 0.50%?

What happens if I purchase a home that's $10,000 or $20,000 less?

Could paying discount points make sense for me?

Could a seller concession be used toward closing costs or, when permitted and appropriate for the loan, toward a rate buydown?

Those conversations give you much more useful information than simply asking, “Are rates high?”

Remember: The Interest Rate Is Only One Part of the Deal

Buyers understandably focus on the mortgage rate because it directly affects the monthly payment.

But the rate isn't the only number that matters.

The purchase price matters. Your down payment matters. Closing costs matter. Property taxes and insurance matter. Seller concessions matter. And your ability to negotiate matters.

Market conditions can also affect how much leverage buyers have.

A home with a lower purchase price or a seller willing to contribute toward closing costs may ultimately make more financial sense than waiting for a lower mortgage rate while other parts of the market change.

Every transaction is different.

What If Mortgage Rates Come Down Later?

This is another reason I wouldn't automatically abandon a home search based on today's rate environment.

If rates eventually decline enough to make refinancing financially worthwhile, homeowners may have the option to refinance later, subject to qualification, costs and market conditions.

What you can't do is go back and purchase a particular house after someone else has bought it—or know with certainty what that home's price or the housing market will look like six months or a year from now.

That's why I don't think buyers should try to perfectly time the housing market.

The goal should be to determine whether buying makes sense for you based on your finances, housing needs and expected time in the home.

What I'm Telling Buyers in Athens and Northeast Georgia

If you're actively looking for a home, don't panic and don't automatically pause your search because of the Fed announcement.

Call your lender.

Ask for updated numbers.

Find out what your payment and purchasing power actually look like today.

Then make your decision.

If the numbers no longer work, we adjust the strategy.

If they still work and you find the right house, there may be no reason to stop looking simply because of yesterday's headline.

And if you're unsure where to start, I'm happy to help you talk through what I'm seeing in the Athens and Northeast Georgia housing market and connect you with a trusted local lender who can run the numbers for your specific situation.

The market will keep changing. Your home-buying strategy can change with it.