The Fed raises interest rates again. The current average 30 year mortgage rate is nearing 6%.

From Yahoo News: https://finance.yahoo.com/news/fed-fomc-monetary-policy-decision-june-2022-120337242.html

The Federal Reserve on Wednesday raised interest rates by 0.75%. This is the largest move it has made in a single meeting since 1994. Further interest rate hikes should be expected as the Fed tries to slow faster-than-expected inflation. We should now expect interest rates to rise to roughly 3.4% by the end of the year. That would suggest another 1.75% in total rate hikes, spread across the remaining four scheduled policy-setting meetings this year. This higher than it had previously forecast in March (when the median member projected a year-end short-term rate closer to 1.9%). The Fed believe that inflation will not abate as fast as they had expected in their March projections. The median Fed policymaker now expects prices to rise by 5.2%, as measured by personal consumption expenditures (PCE), over the course of 2022, a faster pace than the 4.3% it had forecast in March.

The decision to raise interest rates by 0.75% was unexpected as markets had largely expected the central bank to follow through on its communicated strategy of raising by 0.50%. This is all in an attempt to cool inflation. Although the central bankers raised their expectations on inflation for 2022, the median member of the committee expects to see the pace of headline price increases to cool to 2.6% next year. These forecasts suggest inflation could further in 2024 to 2.2%, much closer to the Fed’s 2% target.

The next FOMC meeting will take place the last week of July.

Our analysis: Continued rising interest rates will make the cost of acquiring real estate higher. This should shrink the available buyer pool and this may cause prices to lower for real estate generally. Owners of real estate with adjustable rate mortgages will have increased costs and this may cause some property owners to come to market.

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Stephen Shiu

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Stephen Shiu
BRC Advisors
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Email: sshiu@brcadvisors.com

 
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