What the Federal Reserve interest rate pause means for Triangle homebuyers

The Federal Reserve announced a potential pause on interest rate hikes in June of 2023, a sign that the work done to slow inflation has helped cool the economy. And while it’s expected mortgage rates will continue to be influenced by what the Federal Reserve decides to do in the coming months, Brad Benham, vice president and senior mortgage loan officer at Towne Mortgage of the Carolinas, said mortgage lenders have been preparing for this scenario since before the rate increases ever began.

The Federal Reserve meets again Sept. 19-20, and their recommendation on pausing the current rate will come at that time. And while it means interest rates likely won’t continue to creep up higher for the time being, Benham said there’s much to consider as mortgage rates may be influenced. He also had advice for buyers throughout the Triangle to consider as signs show a pause may be imminent.

Benham said if a rate pause happens, more buyers will start house hunting as mortgage rates lower. “As soon as rates come down, you’re going to have buyers out there purchasing right and left,” he said. “Potential buyers need to go ahead and get out there and start looking. If interest rates do happen to come down, it’s going to mean more people are going to get busy and start looking for homes. And people are going to wait until they hear in the news rates are coming down or that the Feds have paused increasing interest rates.”

He said as interest rates have risen, potential buyers have been hesitant to look for homes. And while some parts of the country have experienced a slowdown, that hasn’t happened in the Triangle market, which means sales could heat up fast. “Even though we’ve still got so many people moving into here, we still have a major shortage of housing. And, of course, that’s not necessarily going to continue to increase the prices at the rate that they have been in the past. But people need to realize they are not going be getting a bargain on those or on any price home.”

Benham also added that lower rates caused a different problem for many buyers. “It’s a balance; you’ve got interest rates to worry about, and the price of homes,” he said. If you think back two years ago when everybody was buying homes, interest rates were dirt cheap. But people couldn’t buy homes because there were so many people trying to buy that it was pushing up the value of the home very quickly, which kept a lot of people out of the market.”

The solution, he said, is to look while there’s less demand, because there’s still a lot of demand for homes across the greater Raleigh-Durham area.

Before the Federal Reserve officially started increasing rates, lenders began preparing for what it would mean for mortgages, which meant lenders were able to slowly ramp up rates. That same fact applies when rates are paused, too.

“We knew that at some point the economic numbers were going to indicate the Federal Reserve could pause on increasing their interest rates, which are the consumer interest rates for cars and credit cards,” Benham explained. “It doesn’t directly affect mortgage rates, but we can see what’s coming down the pike from that. And that’s factored into interest rates long before the Federal Reserve ever announced that they’re increasing or decreasing their rates into mortgage rates. That’s why rates had moved up so quickly — because of the expectation that the Feds would continue to increase their rates.”

It’s likely potential buyers will see a bit of relief and more stability in terms of mortgage rates, Benham said. However, things will not return to the Pandemic rush. “I think we’ll see rates settle down probably in the mid sixes, somewhere in there,” he said. “But I don’t think people should think rates are going to tumble.”

Benham said one of the important things to think about when buying a home is straightforward: if the payment is something you can afford, the interest rate isn’t as important as that payment.

“There’s always the opportunity for people to refinance if, and when, rates do come down. But one of the things I talk about with my buyers is you cannot be guaranteed that rates are going to come down to a point that you’re going to be able to refinance,” he said. “You need to feel comfortable with the payment that you’re looking at currently, because that would be the worst-case scenario.”

Benham explained that lenders watch rates and will get in touch if rates begin to go down. “If rates do come down to a level that you should consider refinancing, we’re going to give you a call or an email to say, ‘Hey, let’s talk about this. Let’s see if it makes sense for you where rates have moved to for you to consider refinancing.’”

Furthermore, he said buying is always a smart decision and that buyers should always purchase sooner rather than later. “The sooner they get into a home, the sooner they’re going to start building equity,” he said. “If somebody’s currently renting, they’re paying a hundred percent of that to somebody else without any appreciation on it, versus if they purchase a home. They’re going to start building equity immediately once they purchase that home.”

While many buyers are entering the market with larger down payments, making their offers more competitive, Benham also encouraged first time homebuyers to look toward entering the market anyway. That includes those who haven’t saved a large amount of money.

“We partner with North Carolina Housing Finance Agency and they’ve recently increased their down payment assistance for first time buyers to $15,000, which is really helping out a lot of people,” he said. “And they increased the maximum purchase price for those homes up to $480,000, which allows people to really purchase a lot more home than they previously were able to.”

He also said it’s important to come in with an optimistic mindset. “They just need to be prepared for where they are currently,” he explained. 

The final recommendation Benham made to potential buyers was simple: just start looking. “Don’t let a pause slow you down from getting out there,” he said.

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