What to do when rates rise
February 2022
It’s no secret. Investors are anticipating the Federal Reserve’s likely actions to raise key lending rates more quickly than expected – and their rapid pullback from the mortgage bond purchasing program. As money moves away from the bond markets in search of stability and greater returns, mortgage rates are rising.
It’s never an easy time when rates fluctuate quickly, especially if that means moving higher. It directly affects my line of work, but sudden hikes in mortgage rates send ripples across several other industries including realtors, home builders, and insurance agents – to name a few. Housing markets have provided a major part of the nation’s economic foundation for decades, so a large shift in activity can affect more than just the obvious players.
In this recent article, senior economist Sam Bullard projects that the Fed may now hike interest rates four times, rather than the previously projected three. And rather than simply stopping its bond-buying activity, the central bank could begin shrinking its balance sheet by not replacing U.S. Treasuries and mortgage-backed securities when they mature, he said.
The Fed’s rate hikes would not have a direct impact on mortgage rates, as they tend to follow the direction of the yields on long-term bonds such as the 10-year Treasury. Instead, higher rates will materialize as investors begin to make assumptions about the Fed’s plans for curbing inflation.
Higher rates aren’t likely to cause home buyers to fully pump the brakes on their plans to purchase property, economists suggested. But it will have an impact at the margins for buyers who may struggle to afford the double whammy of higher interest rates and rising home prices.
With that in mind, I have a few thoughts on what to do in planning for this year:
1) Keep perspective. Even with mortgage rates rising to several-year highs, they remain extremely low in the historical context.
2) Plan for lower volume. While extreme peaks in sales activity is fun, these periods aren’t meant to last. In fact, a frantic pace is unsustainable at best and can lead to unhealthy levels of speculation, price wars, and overall sloppiness. Adjusting our expectations and budgets to more reasonable brackets can ease anxiety and the strain that come with quick changes in the industry.
3) Nurture relationships. If this seems like a repeating theme of mine, that’s because it is! Those of us who plan on developing healthy, long-term careers serving the housing markets need to dig in and be sure that we are in front of our clients and referral partners. If those relationships have grown a little thin during periods of huge demand, now is the best time to slow down and reconnect.
Would you like to schedule time together as the new year begins and discuss how we can nurture our most important relationships?
Please drop me an email or call if you have any questions – or someone you know is in need of expert advice. I love to help those you care about. If you have a referral please click the button down below. Your referrals are the heart and lifeblood of my business.
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Omar Khamisa
Owner
Mission San Jose Mortgage
2111 W. March Lane, Suite B100
Stockton, CA 95207
Office: 888- 848-7199
Mobile: 510-648-5535
Fax: 209-434-2311
NMLS: 369325
Omar@MSJMortgage.com
