How the Fed’s rate increase will influence the Triangle real estate market

The Federal Reserve raised interest rates on Wednesday, May 4, by half a percent in an effort to slow inflation. If you’re watching news reports, you may have concerns about what’s being said. After all, the Fed raised the rate with the highest increase in more than 20 years. But the circumstances are much different behind this rate increase than they’ve been in previous years.

The largest factors creating instability in the market and causing inflation are still the supply chain issues created by Covid-19 and the Russian war against Ukraine. And when it comes to the real estate market, the truth is the Federal Reserve hike will likely have little to no influence on what’s happening in the Raleigh-Durham area.

“A Federal Reserve increase doesn’t directly affect mortgages,” said Jim Allen, President and CEO of the Jim Allen Group. “In fact, interest rates actually went down yesterday. The two  rates don’t have a direct connection.”

The Federal Reserve has traditionally increased rates to slow down the economy. What happens next is people tend to put a pause on purchasing because rates will be higher on short-term debt. And while in years past, the Fed’s increase tended to put a pause on home buying, this time, the cause is much different. 

“The rate that was increased is the overnight lending rate which affects short term rates like credit cards, car loans, etc., and it does not affect mortgage rates directly,” said Brad Benham, VP and Senior Mortgage Loan Officer at Towne Mortgage of the Carolinas. “The increase was not a surprise to the mortgage market and the increase had already been factored into mortgage rates over the previous months. This is why mortgage rates have been increasing since early January.”

Despite these expected increases in mortgage rates, real estate will continue to remain a smart investment across the Triangle thanks to the unique circumstances that have poised it as a top place to live. Furthermore, mortgage rates are still lower than the historical average. 

“I don’t know how a market can get better than the one we’re currently in,” Jim said. With more than 30,000 jobs expected to come to the Triangle this year, the local market is not going to slow down. “More people want to live here than anywhere else in the world right now.”

If you’re currently searching for a home, don’t hesitate to get in touch with your Realtor to help ease your mind. At The Jim Allen Group, we’re poised to help you navigate the homebuying process in today’s market. You’ll want to make sure to shop for the best mortgage for your needs. We’ll even put you in touch with a trusted lender like our partners at Towne Mortgage of the Carolinas to discuss your options. 

“The markets are expecting the Feds to be hawkish and for inflation issues to continue,” Brad added. But the market is also prepared, which means you can be, too.

Because things like short-term loans and credit cards are more closely tied to the Federal Reserve’s increase, you’ll want to pay off unnecessary debt. Unless you’re locked into a rate, it’s likely you’ll see an increase in your APR on your credit cards over the course of the next two cycles. If you can pay off credit cards, it will also help you as you work toward homeownership, both by saving you money on your debt, and by helping you lock in a better mortgage rate as well.

Don’t let the Federal Reserve’s decisions steer you away from homeownership. A short-term solution shouldn’t steer you away from making a decision that could be beneficial for generations. For the Triangle area, a mortgage is one of the smartest long-term investments you can make. We would love to speak with you today, and help walk you through any home buying concerns you may have. We are experts in the industry and can help you make informed decisions that will pay off. 

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