What we know right now is that the Federal Reserve intends to continue bumping up interest rates until inflation is under control. The Chairman of the Fed, Jerome Powell, said in his Jackson Hole symposium speech last month that the plan won’t change until inflation changes. But, have these increases in federal interest rates been matched in the mortgage market and how has it affected the buyer mindset?

Fed Rates vs Mortgage Rates

Changes in the Federal Reserve’s rate don’t directly impact the 30-year mortgage rate, but there is usually an overall similarity over time that a higher federal interest rate means a higher rate for home buyers. If you want a better short-term future indicator you can use the 10-year treasury bill metric which follows mortgage rates better or you can use a really nice tool, although non-predictive, on NerdWallet that keeps a log of the current average interest rate.

Costs for Buyers

As you can see in the two graphs above, there isn’t an exact correlation. The first one shows the stair-steps of the Fed’s policy through the past few months of bumping up the interest rate at a semi-monthly rate and the second shows a much smoother and slower rise in mortgage rates. But the increase in Federal interest rates is 2.25 since the beginning of the year and the increase in 30-Year Fixed Mortgage averages is 2.3, so there is definitely a coordinated effect over time, just not in each short-term increase.

Are buyers getting out of the market?

One way we can see if buyers are exiting the market due to interest rates is to look at the number of showings per listing each month. Over the past two months we have seen a major dip which is earlier than the normal seasonal dip we see in the fall. Showings being down nearly 20% year-over-year is a clear sign that interest rates have affected buyer outlook in the market. You can also see that we are still in a pretty buyer-heavy market compared to this time in 2019 (the last time we were in a more normal market).

Conclusion

The market is changing and we have two big recommendations for you if you are going to buy or sell in this market. Buyers need to talk to a great lender that can explain different options including newer-style adjustable rate mortgages that don’t balloon or have negative amortization. Sellers need to find a great Realtor® that can market their property for maximum exposure in a market with fewer buyers. We can help with both!