Dennis Lynch of Rumson, NJ, Explains What the Fed Interest Rate Hike Means for Homebuyers

By davidmiller Dennis Lynch / Real Estate Expert

The U.S. Federal Reserve has raised interest rates to a two-decade high of 1% and is expected to continue raising those rates in the coming years. This means that it will be more expensive for homebuyers to borrow money, pushing up the prices of homes and making them harder for people with smaller budgets to afford. However, to understand more about the fed’s interest rate hike, real estate analyst Dennis Lynch shares insight on how it affects homebuyers.

What is the fed interest rate?

The Federal Reserve (or the Fed) is an independent federal agency in Washington, D.C., that regulates the money supply and interest rates in the United States. It is composed of 12 district banks that are responsible for the whole nation. When they increase interest rates, they are telling people to spend less because they want to avoid inflation—or the rise of prices—in the country’s economy. That makes it more expensive for people to borrow money from banks because banks will get better returns from lending it to other people or businesses rather than giving it away for free as a form of saving.

Why Are Fed Interest Rates Important?

The Fed decides to change interest rates each year. This process usually happens twice, once in the first quarter and again in the fourth—depending on how the economy is doing. It affects everything from your mortgage payments to the prices of stocks and bonds on Wall Street. Dennis Lynch of Rumson, NJ, says that an increase in interest rates usually leads to higher housing prices, meaning buyers will have to pay more for their homes. He also warns homebuyers to plan ahead of time how they will afford their new home or continue renting and be prepared to fall behind on their mortgage payments if they cannot afford it.