SUFFOLK, Va. — This week, the Federal Reserve is poised to raise interest rates once again, in an ongoing and continuing battle to fight rising inflation costs without causing the country to fall into a recession.
Reports are mixed between whether it would raise interest rates by 50 or 75 basis points -- or 0.50% and 0.75%, respectively.
“If things become serious that warrant action, they might go to 50 basis points. But only in times of economic uncertainty or near crisis levels will they go to 75 or 100 basis points," Robert McNab said, an economics professor at Old Dominion University.
But no matter how much that increase is, the trickle down effect from a move like this would signal another change into the way Americans borrow money from everything from car loans to home mortgages.
“We’ve seen mortgage rates already trend upward, past 5% on average from the low which was below 3% on average. And we should expect that 30-year-mortgages are going to trend toward 6% in the coming months rather than trend back down. The Federal Reserve will charge banks more for their money, as well as constraining money supply," McNab said.
Meagan Herigstad has seen it from two sides: both as a realtor based in Suffolk and as a recent homebuyer.
Herigstad closed on a home toward the end of 2021, paying a mortgage rate of just over 3%. But even the difference of a couple of months ended up saving her thousands of dollars in the long run.
“If we had to purchase this year, we would’ve had to drop our purchase price by around 100,000 dollars. The 6% on a $350,000 home, as opposed to a 3 and a quarter percent rate, could easily be around $600 payment on someone’s mortgage," she said.
According to national mortgage data from the Virginia REALTORS Association, mortgage rates are climbing, approaching 6% for a 30-year-fixed mortgage.
As the federal reserve weighs increasing interest rates once again, banks are now looking ahead to raise rates themselves.
"Home mortgage rates are forward-looking. So banks are essentially saying, ‘What is the average rate of return I need to make money?’ That’s why 30-year mortgages are rising before the Federal Reserve increases its rate," McNab said.
Herigstad said that this dynamic can lower someone’s buying power. She said having to pay a higher mortgage rate could price a homebuyer out of a certain price point for a home they really wanted.
“You may walk in with the assumption with 4% interest, I can buy a $350,000 home. Now it's like, hold on. If there is a 6% interest, maybe I can only afford a $275,000 house," she said.