For months we’ve heard the Federal Reserve will increase interest rates when they meet later this month. In fact, temporary Fed Chair Jerome Powell said just yesterday he fully intends to support a .25% increase in what the Fed charges banks for loans when they meet in two weeks as a means of attempting to control inflation.
Meanwhile, interest rates have been falling, and real estate prices rising – which seems puzzling given all the months of media speculation about and Powell’s own pronouncement about rate hikes. After all, higher interest rates mean the cost of the money to buy a property will be more expensive.
So what gives?
Mortgage rates roughly follow the yield, or rate of return, on the U.S. 10-year Treasury note. A treasury note is a government debt security that offers a guaranteed rate of return for a fixed rate of time. In this case, 10 years.
In times of uncertainty and unrest (like a war in Ukraine), investors often get their money out of stocks, which they perceive as having more risk, and into something safe, like government bonds. When a whole bunch of people move their money from stocks and into the safety of bonds, the rate of return drops.
While this has had resulted in lower interest rates for now, it is likely not a long-term condition. However, as we begin the spring real estate market, these lower rates will, at least in the near term, increasing buyers purchasing power, thereby keeping property values on an upward trajectory.