The Fed Rate Hikes and the New Normal

Hello Hampton Roads,

Well I'm sure you've heard that the latest CPI numbers came out last week showing that inflation is still strong and that means more Fed rate hikes are on the way.  So far this year the Fed has rasied rates 5 times in an effort to cool inflation and is expected to raise it another .75 % at its next meeting in November and also possibly in December.  This increase has been the fastest pace than any other rate hike cycle.

FOMC Meeting DateRate Change (bps)Federal Funds Rate
Sept 21, 2022+753.00% to 3.25%
July 27, 2022+752.25% to 2.5%
June 16, 2022+751.5% to 1.75%
May 5, 2022+500.75% to 1.00%
March 15, 2022+250.25% to 0.50%

So what's this doing to housing?

Everytime the Fed raises the fed funds rate, mortgage rates go up. It only makes sense that since low mortgage rates fueled the housing boom, higher rates will cool it.   Rates are now in the 7% range having basically doubled since the beginning of the year and because of this the housing market has effectively cooled. 

The New Normal?

According to Lawrence Yun (NAR's chief economist), "7% is likely to be the new normal" but could go higher depending on inflation.

When rates are higher, it means buyers shy away and this is what we are seeing today. Fewer buyers means fewer mortgage applications, less demand, and that leads to lower home prices.

Dealing with the New Normal

Stop waiting for 3% rates.  Holding on to the past will keep you from moving forward in the future. If 7% is the new normal,  does it make sense to wait for rates to drop? It depends. Rates always fluctuate but the extent of the drop is key. I wouldn't hold my breathe anticipating a drop to where they were in the beginning of the year but getting a rate in the 6% range is more realistic.

Price is a compensating factor for higher rates and I beleive closing costs assistance will come back in the picture. Other options like buying down the rate,  and other products like ARMS, or perhaps even assuming a lower rate if the seller's loan allows for it can all help towards lowering the monthly payment.

Are you thinking of buying a home soon? If so, what are you doing to prepare? If you'd like to talk about a specific plan to help you buy a home, feel free to schedule a call

Thanks for Reading,


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