Take a Deep
Breath—The Fed’s Rate
Increase May Not Mean What You Think
by John Stickle
Take a deep
breath and relax. The Fed's latest quarter-point interest-rate hike may
have very little direct effect on a 30-year mortgage.
The Fed primarily controls short-term interest
rates. While mortgage rates can react to its decisions, the 30-year mortgage
rate is driven more by inflation, Treasury bond yields and what investors
believe is coming next. A quarter-point Fed increase does not automatically
mean mortgage rates will increase by a quarter point.
Even if a $400,000, 30-year mortgage moved from
6.95% to 7.20%, the principal-and-interest payment would increase by
approximately $67 per month. Nobody likes paying more, but it may not be the
budget-buster the headlines make it sound like.
Interest rates matter, but they are not the only
factor driving the real estate market. Here in St. Augustine and St. Johns
County, it still comes down to the basics: price, inventory, condition and
competition.
A well-priced home in good condition can still
sell, while an overpriced home can sit regardless of what the Fed does.
The bottom line: one quarter-point increase
should not cause buyers or sellers to panic. Look past the headlines and pay
attention to the numbers that actually affect your property and your monthly
payment.
