Orion’s brokers are receiving a lot of calls from people saying that are confused when they hear this on the news: “The Fed is raising rates.” “The Fed met in Jackson Hole, and higher rates are a sure thing!” What do those statements even mean? And are they true?

The rate the Federal Reserve Open Market Committee is raising is the federal funds rate. The federal funds rate is the interest rate that large banks charge each other to borrow funds overnight to meet their liquidity requirements. This does have a pull-through to the cost of credit in the rest of the economy. This pull-through is not necessarily immediate, but the goal is to increase the cost of credit overall in an effort to dampen the demand for credit, aka borrowing, and lower the inflation rate.

But experienced brokers know that mortgage rates are directly affected by the yields paid on mortgage-backed securities. These are asset-backed securities, made up of a collection of mortgage loans. When demand for these securities drops, the yield (return) they pay, must rise to attract investors. This yield is created by interest, so rates rise. Brokers should remind their clients that this determines mortgage rates, not the Federal Reserve.

Interestingly,while the Federal Reserve has continued to raise the federal funds rate, mortgage rates fell after June 23. Up until that time, theincrease in mortgage rates off all-time lows sidelined a lot of buyers. A lotof recent potential home shoppers would likely be surprised by the fact thatrates have come down nearly a full percentage point, which makes a hugedifference in monthly payments.

Orion’s AEs are hearing from brokers that the recent housing market and interest inflation left a lot of people discouraged. But things have gotten better recently. Sellers are becoming more accommodating, which may allow a buyer some flexibility to use strategies that to make things more affordable. The extreme competitive environment, where every listing had ten all-cash offers that left so many people disheartened, has eased a lot.

Basically, if your client’s dream is to buy a home, they shouldn’t give up. Help them prepare, plan, and strategize. Things are looking up as we head into the late summer andautumn! And Orion has some very good programs for all types of buyers.

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