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How the Fed Rates Hikes May Impact Raleigh Homebuyers and Homeowners

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The Federal Reserve increased short-term interest rates (known as the Federal Funds Rate) by 0.75% on September 21, 2022.  This means the Fed Funds rate is currently at 3.25%. The Fed Funds Rate is the interest rate that banks charge each other to lender/lend overnight.

It is critical to know, the Prime Rate (i.e. the interest rate the banks charge their top tier clients), is based on the Fed Funds Rate. The Prime Rate is set by large banks and is often used to determine the interest rates on lines of credit and credit cards. The formula for Prime is very simple…Fed Funds Rate plus 3. This means the Prime rate is currently 6.25%.

Raleigh Mortgage Rates 

Raleigh Mortgage rates and all mortgage rates on fixed-rate mortgages are NOT impacted by changes to the Federal Funds Rate. Raleigh mortgage rates fluctuate based on the supply and demand for mortgage bonds in the bond market. 

The Fed has been the biggest buyer of mortgage bonds in recent years with an unprecedented pandemic-era bond-buying program. Simply put, this is why there has been record low Raleigh mortgage rates recorded. The Fed is currently in the process of exiting their bond-buying programs. This unwinding is why the average interest rates on fixed-rate Raleigh mortgages have gone up by more than 3% so far this year according to data from Freddie Mac’s weekly survey of mortgage rates. 

The Martini Mortgage Group expects Raleigh mortgage rates to continue drifting higher as the Fed continues to exit its pandemic-era bond-buying programs.

HOME EQUITY LINES OF CREDIT (HELOC)

Interest rates on HELOCs change whenever the Fed changes rates. This is because HELOCs are based on the Prime Rate, which went up to 6.25%. 

HELOCs are typically quoted at Prime plus a certain percentage. For example, if your HELOC is Prime plus 1, your HELOC interest rate would be 7.25%. HELOC interest rates are likely to continue moving higher as the Fed continues to hike interest rates.

The average annual gain in home equity was $60,200 per homeowner from July 2021 to July 2022.

Raleigh Mortgage Broker Kevin Martini

Home prices have climbed 15.8% year-over-year from July 2021 to July 2022, according to the latest Home Price Insights and Homeowner Equity reports from CoreLogic, a leading global real estate data provider. If you currently have a HELOC it is important to know that it is highly probable that the Fed will continue raising the Federal Funds Rate which could significantly impact your housing costs. It may be smart to consider a ‘Cash-Out Refinance‘ right now to lock in your housing costs.

CREDIT CARDS

Interest rates on credit cards change whenever the Fed changes rates. This is because credit cards are based on the Prime Rate, which went up to 6.25%. Credit Cards are typically quoted at Prime plus a certain percentage, just like a HELOC.  For illustration, if your credit card is Prime plus 10, your credit card interest rate would be 16.25%. 

Credit card interest rates are likely to continue moving higher as the Fed continues to hike interest rates. If you have credit card debt today, perhaps you should consider ‘Cash-Out-Refinance‘ to unleash your equity and use it to payoff credit cards and other high interest debt.

logan martini raleigh mortgage lender with martini mortgage group 2

Logan Martini

NMLS 1591485 | Senior Mortgage Strategist | Martini Mortgage Group at | 507 N Blount St, Raleigh, NC 27604 | (919) 238-4934 | www.MartiniMortgageGroup.com | [email protected] | Equal Housing Lender

Kevin Martini

NMLS 143962 | Certified Mortgage Advisor | Martini Mortgage Group at Gold Star Mortgage Financial Group, Corporation | NMLS # 3446 | 507 N Blount St, Raleigh, NC 27604 | (919) 238-4934 | www.MartiniMortgageGroup.com | [email protected] | Equal Housing Lender

kevin martini best raleigh mortgage broker

The MartiniFactor | last week and this week with real estate and mortgage rates | May 6, 2022

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The MartiniFactor is produced by Raleigh Mortgage Broker Kevin Martini and it provides a glimpse of what happened last week in real estate and in the mortgage arena.  In addition, it shares thoughts on what to keep on the radar for the week ahead in the mortgage markets.

Last week (4/29/2022) & this week (5/6/2022)

LAST WEEK IN THE REAL ESTATE & MORTAGE MARKETS

CoreLogic released their Single-Family Rent Index this week and it showed that rents were up 13.1% Year-over-Year in February. Clearly now it is not the time to rent however it may be the time to explore the opportunity to invest and create a real estate portfolio.

Gross Domestic Product (GDP) illuminated that growth was down 1.4%. This decline is a potential sign of a recession but remember, sometimes you can be in and out of a recession before you even know it since, first quarter GDP will be revised 2-times and the final number is not inked until June 2022. Remember, a recession is two consecutive quarters of a downward shift of economic data hence, we won’t know until Fall of 2022 if a recession is happening or ha happened.

The Federal Reserves favorite measure of inflation is the Personal Consumption Expenditures (PCE). PCE indicated last week that inflation rose 0.9% in March and that was much higher than what was expected. The Core rate, which takes out food and energy was up 0.3%. Yes, inflation remains at a 40-year high!

THIS WEEK IN THE MORTGAGE MARKETS

Economic News Calendar

Monday – 5/2/22

ISM Manufacturing

Construction Spending

Tuesday – 5/3/22

Reserve Bank of Australia

Factory Orders

JOLTS (Job Openings & Labor Turnover Survey)

Wednesday – 5/4/22

ADP Private Payroll

Trade Balance

ISM Non-Manufacturing

Fed Interest Rate Decision

Fed Chair Powell Speaks

Thursday – 5/5/22

Bank of England

Challenger Job Cuts

Initial Jobless Claims

Nonfarm Productivity

Unit Labor Costs

Friday- 5/6/22

Nonfarm Paytolls

Average Hourly Earnings (month-over-month)

Average Hourly Earnings (year-over-year)

Average Weekly Hours

Unemployment Rate

This week home loan rates may significantly be impacted by the wealth of important economic news. ADP Private Payrolls and the Jobs Reports will be released plus the Federal Reserve’s Interest Rate decision. It is the opinion of the Martini Mortgage Group, the Federal Reserve will hike 0.5% however the real story for Raleigh mortgage rates is what will the Federal Reserve do with their balance sheet which includes mortgage bonds.

The Federal Reserve increasing the Federal Funds Rate has no significant impact on Raleigh mortgage rates. Credit card rates, Home Equity Lines of Credit (HELOC) and car loans, for example, are based on the Prime Rate and the Prime Rate is based on the Federal Funds Rate. So a hike of the Federal Funds Rate will no impact Raleigh home loan rates. However, $2.9 trillion is the number of mortgage bonds purchased by the Federal Reserve since March 2020. The reduction of the Federal Reserves holdings of these mortgage bonds could drive up Raleigh home loan rates.

The Federal Reserve is expected to reverse course and start selling its massive, 2.9 trillion of bonds as early as June. When that happens, other central banks across the world may follow suit. This means the already-stressed bond market may be in for a massive deluge of supply in the coming months, which could put more upward pressure on interest rates. Wednesday’s announcement from the Federal Reserve is so important to the bond market, and why mortgage rates may be impacted.

THE MARTINI MORTGAGE GROUP BOTTOM LINE

Be prepared for more volatility and remember, right now, real estate and the current mortgage rate environment remains an opportunity. From a historical perspective, home loan rates are still very low even with the upward movement in 2022. Mortgage Strategists with the Martini Mortgage Group are here to talk about what you have just read and available to help you on the path to buying you home. Contact the Martini Mortgage Group by dialing (919) 238-4934.

Kevin Martini

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Kevin Martini | NMLS 143962 | Certified Mortgage Advisor and Producing Branch Manager | Martini Mortgage Group at PCL Financial Group (powered by Celebrity Home Loans, LLC NMLS 227765) | 507 N Blount St Raleigh, NC 27604 | (919) 238-4934 | www.MartiniMortgageGroup.com | [email protected] | nmlsconsumeraccess.org | Equal Housing Lender

Logan Martini

Logan Martini | NMLS 1591485 | Senior Mortgage Strategist | Martini Mortgage Group at PCL Financial Group (powered by Celebrity Home Loans, LLC NMLS 227765) | 507 N Blount St Raleigh, NC 27604 | (919) 238-4934 | www.MartiniMortgageGroup.com | [email protected] | nmlsconsumeraccess.org | Equal Housing Lender

logan martini raleigh mortgage lender with martini mortgage group 2

How the Fed Impacts Raleigh Mortgage Rates

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2.9 Trillion - is the amount of mortgage bonds the Fed has purchased since March 2020. The Fed plans to reduce its bond holdings in the coming months which could drive up mortgage rates.

This is a Special Report by Raleigh mortgage lender and Certified Mortgage Advisor Kevin Martini on how the Federal Reserve impacts Raleigh mortgage rates.

THE FED IMPACTS FIXED-RATE MORTGAGES BY BUYING AND SELLING MORTGAGE BONDS.

Raleigh interest rates on fixed-rate mortgages change whenever the Fed buys or sells mortgage bonds, and whenever the Fed makes statements about buying and selling mortgage bonds. Since the pandemic hit the economy in March 2020, the Fed has purchased an eye-popping $2.9 TRILLION of mortgage bonds, making it the biggest buyer of bonds in the market. This purchase of mortgage bonds by the Fed is what caused caused Raleigh interest rates to go down to record levels.

raleigh mortgage rates by kevin martini a raleigh mortgage broker

However, as you can see from the chart above, mortgage bond prices fell off a cliff in Q1 2022 when the Fed announced it would be scaling back its massive bond-buying program. When mortgage bond prices go down, mortgage rates go up. The average interest rates on fixed-rate mortgages went up by 1% + so far this year according to Freddie Mac’s weekly survey of mortgage rates. 

I expect more volatility in mortgage rates as the Fed continues to release more details about when and how it plans to roll back its bond-buying programs and reduce its bond holdings.

Raleigh Mortgage Broker & Certified Mortgage Advisor, Kevin Martini

THE FED IMPACTS HOME EQUITY LINES OF CREDIT BY CHANGING THE “FED FUNDS RATE” NOT MORTGAGE RATES.

Raleigh interest rates on home equity lines of credit (a.k.a. HELOCs) change whenever the Fed lowers or increases the “Federal Funds Rate.” That’s because HELOCs are based on the Prime Rate and the Prime Rate is based on the Fed Funds rate. The Fed increased rates in March 2022 for the first time since 2018 and indicated more rate hikes are on the way. This means that rates on home equity lines of credit are likely to increase significantly by the end of 2022.

WIth the projected increase in HELOCs cost, one should consider refinancing the balance into a new first fixed rate mortgage and lock in their housing costs.

Raleigh Mortgage Broker & Certified Mortgage Advisor, Kevin Martini
Credit cards, personal loans, student loans, auto loans and business loans are directly impacted when the Fed raises rates

MARTINI MORTGAGE GROUP TOP 3 RISKS TO RALEIGH HOME LOAN RATES FOR THE BALANCE OF 2022

Inflation

The nemesis to a bond is inflation because inflation erodes the bonds return. Right now, bonds are trading at negative yields relative to inflation. For example, if a bond investor is earning 3% and the inflation rate is 7%, the investor is losing 4%. At some point, it seems likely that bond investors may demand higher yields in order to account for higher inflation. This could drive up Raleigh interest rates even higher.

The Federal Reserve

The Fed has injected an eye-popping $4.516 Trillion into the economy since March of 2020 by buying Treasury bonds and mortgage bonds.  2.9 Trillion of the 4.516 Trillion of stimulus was mortgage bonds.  This infusion caused Raleigh mortgage rates to go down to record levels. As the Fed unwinds the mortgage bond purchases, many economists are anticipating that Raleigh home loan rates will rise significantly. 

Good News vs. Bad News

As a primer, news impacts Raleigh mortgage rates. On the aggregate, when negative news about the economy hits the wires, investors flock to the bond market for safety, driving down interest rates. When positive news hits the wires, investors shift their bias toward stocks and away from bonds, causing interest rates to go up. Many economists are anticipating that the economy will remain strong in 2022 however with geopolitical events and unwinding of the 2.9 Trillion  of mortgage bonds, it is likely that Raleigh home loan rates may go up as a result.

Let’s Chat About Raleigh Mortgage Rates and How You May Benefits from Buying a Home Or Refinancing Your Current Home.

If you have question about this article, if you have questions about buying a home as a first-time homebuyer or as a repeat homebuyer, if you have questions about refinancing your current home loan, simply call the Martini Mortgage Group at PCL Financial by calling (919) 238.4934.