YORK, Pa. — It may soon cost more to buy a house: the Federal Reserve raised interest rates on Wednesday for the first time since 2018.
The move will send financing costs higher across many markets and indirectly raise rates in other areas, such as home mortgages.
Mortgage interest rates are influenced but not directly controlled by the Fed’s short-term benchmark rate—now set at 0.25% to 0.5%. They instead follow the long-term bond market, which is directly influenced by the Fed’s interest rate.
This week, the 30-year mortgage rate jumped to 4.16%, its highest level since May 2019, according to data from Freddie Mac.
“It has an absolute real cost," said broker Wendell Hoover of Iron Valley Real Estate. "It will absolutely affect the market. I don’t know that I’ve seen it have much of an effect yet, but it may start to, and I think it will have more of an effect if interest rate continues to increase.”
Interest rates are, in fact, expected to increase. The Fed has signaled it plans to raise rates six more times this year.
For homeowners, the continued hikes could limit affordability and housing choices.
“If they qualified a couple of months ago for $300,000, now with the interest rates rising they may only qualify for $275,000," said realtor Shelley Walter, who sells in York and Adams Counties as well as Ocean City, Md. "So, their housing possibilities have shrunk."
With a higher interest rate, it’s tempting to try to pay off more of a house early on. However, that’s not necessarily the best plan, according to mortgage brokers. While interest may be rising now, it likely won’t remain high for the entirety of the mortgage. So buyers don’t always need to scrounge up funds to pay a higher down payment.
“Just get into the house without paying any extra fees or points if you have to, just get in with the least amount of cash out of pocket as possible as far as your closing costs,” said Rebecca Foote, vice president of mortgage lending for Foote Capital Mortgage Company. “Then we’ll refinance you later down the road for a lower interest rate.”
The housing market is still hot because of low inventory, realtors said, so they don’t expect rising interest rates to cool it anytime soon.