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When you read about the housing market in the news, you might see something about a recent decision made by the Federal Reserve (the Fed). But how does this decision affect you and your plans to buy a home? Here’s what you need to know.

The Fed is trying hard to reduce inflation. And even though there’s been 12 straight months where inflation has cooled (see graph below), the most recent data shows it’s still higher than the Fed’s target of 2%: 

While you may have been hoping the Fed would stop their hikes since they’re making progress on their goal of bringing down inflation, they don’t want to stop too soon, and risk inflation climbing back up as a result. Because of this, the Fed decided to increase the Federal Funds Rate again last week. As Jerome Powell, Chairman of the Fed, says:

“We remain committed to bringing inflation back to our 2 percent goal and to keeping longer-term inflation expectations well anchored.”

Greg McBride, Senior VP, and Chief Financial Analyst at Bankrate, explains how high inflation and a strong economy play into the Fed’s recent decision:

“Inflation remains stubbornly high. The economy has been remarkably resilient, the labor market is still robust, but that may be contributing to the stubbornly high inflation. So, Fed has to pump the brakes a bit more.”

Even though a Federal Fund Rate hike by the Fed doesn’t directly dictate what happens with mortgage rates, it does have an impact. As a recent article from Fortune says:

“The federal funds rate is an interest rate that banks charge other banks when they lend one another money . . . When inflation is running high, the Fed will increase rates to increase the cost of borrowing and slow down the economy. When it’s too low, they’ll lower rates to stimulate the economy and get things moving again.”

How All of This Affects You 

In the simplest sense, when inflation is high, mortgage rates are also high. But, if the Fed succeeds in bringing down inflation, it could ultimately lead to lower mortgage rates, making it more affordable for you to buy a home.

This graph helps illustrate that point by showing that when inflation decreases, mortgage rates typically go down, too (see graph below): 

As the data above shows, inflation (shown in the blue trend line) is slowly coming down and, based on historical trends, mortgage rates (shown in the green trend line) are likely to follow. McBride says this about the future of mortgage rates:

“With the backdrop of easing inflation pressures, we should see more consistent declines in mortgage rates as the year progresses, particularly if the economy and labor market slow noticeably.”

Bottom Line

What happens to mortgage rates depends on inflation. If inflation cools down, mortgage rates should go down too. Count on a real estate professional you can trust for expert advice on housing market changes and what they mean for you.

Many homeowners thinking about selling have two key things holding them back. That’s feeling locked in by today’s higher mortgage rates and worrying they won’t be able to find something to buy while supply is so low. Let’s dive into each challenge and give you some helpful advice on how to overcome these obstacles.

Challenge #1: The Reluctance to Take on a Higher Mortgage Rate

According to the Federal Housing Finance Agency (FHFA), the average interest rate for current homeowners with mortgages is less than 4% (see graph below):

But today, the typical 30-year fixed mortgage rate offered to buyers is closer to 7%. As a result, many homeowners are opting to stay put instead of moving to another home with a higher borrowing cost. This is a situation known as the mortgage rate lock-in effect.

The Advice: Waiting May Not Pay Off

While experts project mortgage rates will gradually fall this year as inflation cools, that doesn’t necessarily mean you should wait to sell. Mortgage rates are notoriously hard to predict. And, right now home prices are back on the rise. If you move now, you’ll at least beat rising home prices when you buy your next home. And, if experts are right and rates fall, you can always refinance later if that happens.

Challenge #2: The Fear of Not Finding Something to Buy

When so many homeowners are reluctant to take on a higher rate, fewer homes are going to come onto the market. That’s going to keep inventory low. As Lawrence Yun, Chief Economist at the National Association of Realtors (NAR), explains:

“Inventory will remain tight in the coming months and even for the next couple of years. Some homeowners are unwilling to trade up or trade down after locking in historically-low mortgage rates in recent years.”

Even though you know this limited housing supply helps your house stand out to eager buyers, it may also make you feel hesitant to sell because you don’t want to struggle to find something to purchase.

The Advice: Broaden Your Search

If fear you won’t be able to find your next home is the primary thing holding you back, remember to consider all your options. Looking at all housing types including condos, townhouses, and even newly built homes can help give you more to choose from. Plus, if you’re able to work fully remote or hybrid, you may be able to consider areas you hadn’t previously searched. If you can look further from your place of work, you may have more affordable options.

Bottom Line

Instead of focusing on the challenges, focus on what you can control. Reach out to a local agent so you’re working with a professional who has the experience to navigate these waters and find the perfect home for you. 

Some Highlights

• If you’re considering buying or selling a home, you’ll want to know what’s happening in the housing market.
• Housing inventory is still very low, prices are climbing back up, and homes are selling fast when priced right.
• Connect with a real estate agent if you want more information about your local area and what the trends mean for your plans to buy or sell.

While the wild ride that was the ‘unicorn’ years of housing is behind us, today’s market is still competitive in many areas because the supply of homes for sale is still low. If you’re looking to buy a home this season, know that the peak frenzy of bidding wars is in the rearview mirror, but you may still come up against some multiple-offer scenarios.

Here are a few things to consider to help you put your best foot forward when making an offer on a home.

1. Lean on a Real Estate Professional

Rely on an agent who can support your goals and help you understand what’s happening in today’s housing market. Agents are experts in the local market and on the national trends too. They’ll use both of those areas of expertise to make sure you have all the information you need to move with confidence.

Plus, they know what’s worked for other buyers in your area and what sellers may be looking for in an offer. It may seem simple, but catering to what a seller needs can help your offer stand out. As an article from Forbes says:

“Getting to know a local realtor where you’re hoping to buy can also potentially give you a crucial edge in a tight housing market.”

2. Get Pre-Approved for a Home Loan

Having a clear budget in mind is especially important right now given the current affordability challenges. The best way to get a clear picture of what you can borrow is to work with a lender so you can get pre-approved for a home loan.

That’ll help you be more financially confident because you’ll have a better understanding of your numbers. It shows sellers you’re serious, too. And that can give you a competitive edge if you do get into a multiple-offer scenario.

3. Make a Fair Offer

It’s only natural to want the best deal you can get on a home. However, submitting an offer that’s too low does have some risks. You don’t want to make an offer that will be tossed out as soon as it’s received just to see if it sticks. As Realtor.com explains:

“. . . an offer price that’s significantly lower than the listing price, is often rejected by sellers who feel insulted . . . Most listing agents try to get their sellers to at least enter negotiations with buyers, to counteroffer with a number a little closer to the list price. However, if a seller is offended by a buyer or isn’t taking the buyer seriously, there’s not much you, or the real estate agent, can do.”

The expertise your agent brings to this part of the process will help you stay competitive and find a price that’s fair to you and the seller.

4. Trust Your Agent’s Expertise Throughout Negotiations

During the ‘unicorn’ years of housing, some buyers skipped home inspections or didn’t ask for concessions from the seller in order to submit the winning bid on a home. An article from Bankrate explains this isn’t happening as often today, and that’s good news:

“While the market has largely calmed down since then, sellers are still very much in the driver’s seat in this era of scarce housing inventory. It’s not as common for buyers to waive inspections anymore, but it does still happen. . . . It’s in the buyer’s best interest to have a home inspected . . . Inspections alert you to existing or potential problems with the home, giving you not just an early heads up but also a useful negotiating tactic.”

Fortunately, today’s market is different, and you may have more negotiating power than before. When putting together an offer, your trusted real estate advisor will help you think through what levers to pull and which ones you may not want to compromise on.

Bottom Line

When you buy a home this summer, be sure to work with a real estate advisor to make your best offer.

If you’ve been keeping up with the news lately, you’ve probably come across headlines talking about the increase in foreclosures in today’s housing market. This may have left you with some uncertainty, especially if you’re considering buying a home. It’s important to understand the context of these reports to know the truth about what’s happening today.

According to a recent report from ATTOM, a property data provider, foreclosure filings are up 2% compared to the previous quarter and 8% since one year ago. While media headlines are drawing attention to this increase, reporting on just the number could actually generate worry for fear that prices could crash. The reality is, while increasing, the data shows a foreclosure crisis is not where the market is headed.

Let’s look at the latest information with context so we can see how this compares to previous years.

It Isn’t the Dramatic Increase Headlines Would Have You Believe

In recent years, the number of foreclosures has been down to record lows. That’s because, in 2020 and 2021, the forbearance program and other relief options for homeowners helped millions of homeowners stay in their homes, allowing them to get back on their feet during a very challenging period. And with home values rising at the same time, many homeowners who may have found themselves facing foreclosure under other circumstances were able to leverage their equity and sell their houses rather than face foreclosure. Moving forward, equity will continue to be a factor that can help keep people from going into foreclosure.

As the government’s moratorium came to an end, there was an expected rise in foreclosures. But just because foreclosures are up doesn’t mean the housing market is in trouble. As Clare Trapasso, Executive News Editor at Realtor.com, says:

“Many of these foreclosures would have occurred during the pandemic, but were put off due to federal, state, and local foreclosure moratoriums designed to keep people in their homes . . . Real estate experts have stressed that this isn’t a repeat of the Great Recession. It’s not that scores of homeowners suddenly can’t afford their mortgage payments. Rather, many lenders are now catching up. The foreclosures would have happened during the pandemic if moratoriums hadn’t halted the proceedings.”

In a recent article, Bankrate also explains:

“In the years after the housing crash, millions of foreclosures flooded the housing market, depressing prices. That’s not the case now. Most homeowners have a comfortable equity cushion in their homes. Lenders weren’t filing default notices during the height of the pandemic, pushing foreclosures to record lows in 2020. And while there has been a slight uptick in foreclosures since then, it’s nothing like it was.”

Basically, there’s not a sudden flood of foreclosures coming. Instead, some of the increase is due to the delayed activity explained above while more is from economic conditions.

To further paint the picture of just how different the situation is now compared to the housing crash, take a look at the graph below. It uses data on foreclosure filings for the first half of each year since 2008 to show foreclosure activity has been consistently lower since the crash.

While foreclosures are climbing, it’s clear foreclosure activity now is nothing like it was back then. Today, foreclosures are far below the record-high number that was reported when the housing market crashed.

In addition to all the factors mentioned above, that’s also largely because buyers today are more qualified and less likely to default on their loans.

Bottom Line

Right now, putting the data into context is more important than ever. While the housing market is experiencing an expected rise in foreclosures, it’s nowhere near the crisis levels seen when the housing bubble burst, and that won’t lead to a crash in home prices.