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05/17/2023 by HOM

As a real estate agent, one of the things that people talk to me about are interest rates.

In April 2022, the Federal Reserve started their now infamous policy of raising the ‘Fed Funds’ rate. The rate has been increased nine times in the past twelve months. What is the ‘Fed Funds’ rate? It is the rate that the Federal government charges banks when banks borrow money from the Federal Reserve. Every bank gets charged the same rate.

The interest rates that people are talking to me about are the 30-year fixed rate mortgage rates. These are two very different things. Most people believe that every time that the Fed Fund rate increases, the mortgage rates increase at the exact same rate. This is categorically incorrect.

When the first Fed Fund rate increase happened in April of 2022, the mortgage rates started to climb. In fact, for the next 7 times that the Fed Fund rate increased, the banks did increase mortgage rates. However, the market reaction to the mortgage rates increasing resulted in a stark drop in mortgage applications. Lenders realized in a very short period of time that their ‘pipeline’ of mortgage applications had come to a screeching halt. As a result, lenders modified their mortgage rates downward even though there was no decrease in the Fed Fund rate. Since then, mortgage rates have fluctuated as the economy reacted to interest rate increases.

See the chart below that tracks both the Fed Fund Rate and the Freddie Mac monthly average 30-year Mortgage rate. It is very interesting to track how these two economic indicators differ.


For more information on interest rates, the real estate market and helping you buy or sell a home, give us a call, 914-337-7888.

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