Here at NDI, we have spent considerable time helping homeowners navigate the rising interest rate environment. We have provided important updates after each of the recent Federal Reserve announcements so that our friends and clients know what it means for their plans for building a home in northern Virginia. And today is no different.
The Impact of Interest Rates
As a refresher, when the Federal Reserve raises (or lowers) interest rates, it can provide a cooling effect on the economy or give it a boost by making money easier to borrow. For the last 10 meetings, the Fed has raised interest rates in an attempt to tamp down inflation. Mortgage rates tend to follow interest rates and as a result, we’ve seen the national average of a conventional mortgage hit 7% this year.
It’s no secret that people looking to buy or build a new home have been watching the Fed and mortgage rates for a sign that they have peaked. One such indicator would be for the Fed to pause or signal an end to its rate increases.
The Latest Fed Announcement
On June 14, the Fed ended its streak of raising rates and announced that it would leave interest rates unchanged until their next meeting. The main reason why the Fed has paused interest rate increases is to assess the state of the economy. By pausing interest rate increases, the Fed is taking a wait-and-see approach to ensure that the economy continues to grow in a stable manner without the threat of price surges.
Top Fed officials did indicate that there could be further rate increases—which could come as early as next month—if the economy and inflation require it.
What This Means for Real Estate
After nearly 12 months of rate hikes, this pause will have a positive impact on buyers’ psyche and should push more sellers and buyers into the market. The hint of more rate increases should entice buyers to take advantage of this period of rate stability and boost the real estate market.
The bottom line is that we are in a new normal—3% or 4% interest rates are not on the near-term horizon. What will be needed is for buyers and sellers to adapt to this new normal.
Over time, rates will rise and fall with intervention from the Fed. And prices for materials, labor and property will likely rise, not fall. Those increased costs may very well outweigh any interest payment savings homeowners may get by waiting to build their new home.
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