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Six Things to Know About Rising Interest Rates and the Housing Market

Over the last two years, low rates and low inventory fueled a hot housing market. This has led to an unprecedented rise in home values leading to shocking cash bids on many homes. As of January 2022, the median sale price of a single-family home was up 16% year-over-year, according to the National Association of Realtors. Higher rates reduce the interest in refinancing due to the desire not to increase your monthly mortgage, which will create more scarcity as people are less aggressive about selling homes. 

On Wednesday, March 16, 2022, the Federal Open Market Committee announced it would raise the target federal funds rate 25 basis points (0.25%) to slow decades-high inflation.

According to Freddie Mac, the average rate for a 30-year fixed mortgage surpassed 4% for the first time since May 2019 following the Federal Reserve’s announcement of rising interest rates. Read on to see how the rising rates could have an effect on your upcoming house search or a new venture to build a new building.

Key points you need to know:

  • Rates are expected to rise an estimated six additional times this year for a total of seven increases.
  • Rising interest rates could affect the overall total cost of your individual construction and mortgage loans.
  • When inflation rates are high, federal funding rates increase to help balance the economy.
  • Your banker can help you evaluate options for variable versus fixed rates on your loans to determine the best option for you. 

Federal Funding Rates    The Federal Reserve is expected to raise the federal funding rate a total of seven times in 2022.
Inflation Rates & Federal Funding Rates 1970 - 2022
When inflation rates are high, the federal funding rates increases as well to help balance the economy.



How Interest Rates Affect Mortgages

Why are mortgages important for Americans and their wallets?

Mortgages are some of the first places Americans tend to feel the effects of the Federal Reserve's decision because higher rates mean more of your mortgage payment goes towards interest instead of principal. This means less money in your pocket over the life of your loan.

What's an interest rate?

The interest rate is the amount charged on top of the principal by a lender to a borrower for the use of assets. Banks' interest rates are determined by a number of factors, including the current economy. The Federal Reserve sets the interest rate, which then each bank, like Altabank, uses to determine the range of annual percentage rates (APRs) they offer on mortgages and loans. 

Why are interest rates important to the housing market? 

Interest rates are important to the housing market for multiple reasons. They determine how much someone will have to pay to borrow the money to buy a property. They also influence the property's value—low-interest rates tend to increase demand on a property, while high-interest rates do the opposite. 

What influences how interest rates on mortgages are set? 

Lenders first have to consider the general cost of borrowing money based on the current economy, market outlook, and government monetary policy. Other factors would be credit history, income, and the type and size of loan a borrower is looking to acquire. 

What do I choose between Fixed-Rate or Adjustable-Rate Mortgage (ARM) during high-interest rate conditions?

In times of high-interest rates, many borrowers may choose an ARM with the expectation that interest rates will fall. However, when rates are expected to stay high or rise, a fixed-rate mortgage may be the best option. It is about watching the market and keeping an eye at what the government plans to do. 

How are rates affecting the average American?

The average American will feel the impact of rising rates on the individual and household levels. When rates fluctuate, the results impact how we borrow and save money. 


Home Prices vs Mortgage Rates



Home prices in Utah continue to stay above the national home price average.




How Interest Rates Affect Home Construction Loans

How do rising interest rates affect my construction loan?

  • With rising interest rates, the interest expenses accrued during the life of the construction loan may be greater than anticipated.
  • Rising interest rates may increase the overall cost of your construction loan and eventually your mortgage loan and should be factored into your initial consideration.
  • With interest rates rising a projected seven times this year, the interest rate on your final mortgage loan may be different, or higher, than your construction loan rate.
  • Higher interest rates may require more equity, or money down, when you acquire your construction loan.

If you are wondering what type of mortgage loan would be best for you, talk to your banker and they can help you sort it out. A banker can help you evaluate your options and determine which is best for you and your situation.

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