Federal Reserve Chair Kevin Warsh followed market expectations Wednesday, holding rates steady in the 3½ to 3¾% range despite persistent inflation.
A growing number of his peers — including the three who cast dissenting votes on the decision — believe rates need to rise to keep inflation in check as the Middle East conflict drags on.
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Many economists believe Warsh may increase Fed rates later this year, but that’s no more a sure thing than the end of the Iran war.
Josh Jarboe, broker-owner of the REMAX Empire brokerage in Louisville, Kentucky, told Moneywise that all the uncertainty is adding to people’s concerns about buying homes.
He notes that home buyers everywhere are struggling with inflation — but raising Fed rates to slash inflation is a double-edged sword.
“Housing is often collateral damage in fighting inflation,” he told Moneywise.
Here’s a look at why that is and some of the ways home buyers can move past the uncertainty and step onto the property ladder.
Fed rates and consumer confidence
Jarboe noted that while federal rates don’t directly impact mortgage rates the way bond yields do, they do impact buyers in that they affect overall affordability and consumer confidence.
Holding or increasing the Fed rate is designed to keep inflation in check by keeping borrowing rates relatively high — in turn reducing consumer spending.
Jarboe said the impact of a small rate hike of a quarter point may be minimal — resulting in a $5 increase on every $1,000 mortgage payment. But when would-be home buyers hear about any potential rate hike, they get nervous. And they’re already on the sidelines amid the affordability crisis.
“I’m still selling and I’m in the trenches and this market has been unlike anything I’ve experienced,” he said.
Jarboe noted that in Louisville, starter homes that used to sell for $125,000 to $135,000 are now going for $300,000. Factor in the cost of home insurance, with premiums soaring if you’re lucky enough to get it, and buying a home becomes a formidable challenge.
“Everyone is just so squeezed,” he told Moneywise. “Buyers are having cold feet — even the ones who are buying. A lot of people have depleted their savings.”
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What home buyers can do in a time of uncertainty
So what can home buyers do in this economic environment? Moneywise reached out to Ryan Hayes, Head of Retail Lending at JP Morgan Chase, to learn more about the options.
It’s not just inflation, mortgage rates and housing supply that affect affordability, Hayes said. It’s each client’s own personal goals and the things they can control. Things like reducing debt and maintaining good credit.
Hayes said home buyers should talk to a lending professional before assuming they can’t afford a home.
Chase offers grants to eligible home buyers and there are local housing nonprofits that may be able to help home buyers too — like Habitat for Humanity, NeighborWorks America and NACA (Neighborhood Assistance Corporation of America).
“Honestly the biggest challenge is not enough buyers are informed on all the products and programs available to them,” Hayes told Moneywise. “I think about people who still think they need 20% down when there are more options and a lot of tools.”
While Fed rates represent a big power tool for the economy, Jarboe and Hayes say home buyers should take advantage of all the tools at their own disposal.
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This article originally appeared on Moneywise.com under the title: Housing is the ‘collateral damage’ in Fed’s fight on inflation — what to know to give yourself an edge in today’s market
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.