Rates Are Rising. You Want a House. What Will Happen Next?

A strange set of (you guessed it, pandemic-influenced) circumstances makes this a tough market to assess. Here are four questions and answers that can help.

It’s what you think you want most in the world. It costs more than nearly anything else you’ll ever buy. The price may have risen over $50,000 last year. And now, here you are, trying to figure out what the machinations of the Federal Reserve might mean for you and your home purchase. That’s hard, and I’m sorry. If it’s any consolation, professional prognosticators don’t know what’s going to happen next, either.

“We know every forecast will be wrong,” said Douglas G. Duncan, senior vice president and chief economist for Fannie Mae. One thing seems certain: The Fed is planning to raise the rates that banks charge one another for short-term loans. That will increase borrowing costs for all kinds of loans — although mortgages aren’t as directly connected to those increases as others.

The Fed’s goal is to tamp down overall inflation, but the weird circumstances caused by the pandemic mean the housing market might not obey. That means you’ll have to be flexible. So start with the knowable.

There were double-digit percentage price increases last year on what is now, at the median, a $408,000 collection of new gypsum and sticks. (It’s $350,000 for existing homes.) Mortgage rates have already risen more than a percentage point off their record lows. And sales have jumped to start the year as many buyers tried to lock in a more attractive rate than what might be available in just a few months.

Now take some deep breaths. You have questions about what this means. These answers should help. The Fed sure seems like it’s going to raise rates next month. What’s going to happen to mortgages?

Mortgage interest rates will probably rise before the year is over, from their current level of 3.92 percent. But it’s not just Fed rate increases in play here. There is an unusual action that may come from the central bank that could drive an increase.

The federal government owns enormous bundles of home mortgages that live inside bonds, which it bought in recent years to stabilize the housing market and the overall economy.

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