On September 16 the Federal Reserve raised its benchmark rate by a quarter point to a range of 3.75% to 4%. It is the first increase in more than three years, and every member of the committee voted for it.
Fed Chair Kevin Warsh put it plainly: "The plain fact is that inflation is too high and has been for too long." Inflation ran 3.4% in August. The Fed's own projections point to one more quarter point hike before the year ends and none in 2027.
What it means for mortgage rates
Mortgage rates do not move one for one with the Fed. They follow the 10 year Treasury yield, which topped 5% this week. As of September 18, the average 30 year fixed rate was 7.05% according to Zillow's lender marketplace, up from the 6.5% range I wrote about in July.
Here is what that looks like on a $700,000 loan. At 6.5% the principal and interest payment is about $4,424 a month. At 7.05% it is about $4,681. That is roughly $257 more every month for the same house. These are example numbers. Your rate depends on your lender, credit, and down payment.
What is happening locally
San Luis Obispo County has not fallen apart. For the three months ending in August, Redfin shows a median sale price of $921,915, up 2.4% from a year ago. Homes sold in a median of 44 days at 98.9% of list price, and 30.9% sold above list. At the same time, 22.1% of homes had a price drop and sales volume was down 7.9%.
My read: well priced homes still get attention, but buyers are more sensitive to the monthly payment than they were six months ago. In Atascadero and Paso Robles, where many buyers are first time or move up buyers watching every dollar of the payment, a quarter point matters.
If you are buying
Shop the payment, not just the price. Talk to a lender this week about your real numbers and your lock options. Ask sellers for a credit or a rate buydown, because more of them are open to it. And do not count on waiting for a drop. The Fed is signaling another hike, not a cut.
If you are selling
Price for a buyer who is counting payments. Prepare for buyers who take a little longer to commit. And look at a concession or buydown before you look at a price cut, since it can move a buyer without lowering your comparable sales. I break down how those work in my August post on seller concessions and rate buydowns.
This is general information, not lending or financial advice. Talk to a lender about your own numbers.