If you’ve been thinking about buying or selling a home, you’ve probably found yourself paying more attention to the Federal Reserve than you ever expected.

A Fed announcement hits the news. You see the words “rate increase.” And the natural reaction is: Mortgage rates are going up again. Maybe I should put my move on hold.

But there is an important distinction that often gets lost in the headlines:

The Federal Reserve does not set mortgage rates.

That doesn’t mean Fed policy doesn’t matter. It does. But the relationship between a Fed rate decision and the rate you may actually receive on a mortgage is much more complicated, and understanding that difference can help you make a housing decision based on your real numbers rather than a headline.

What rate does the Fed actually control?

When people say “the Fed raised rates,” they are generally talking about the federal funds rate. That’s the target for the overnight rate at which banks lend reserve balances to one another.

That rate influences borrowing costs throughout the economy, particularly shorter-term rates. But it is not the interest rate on a 30-year fixed mortgage.

Mortgage rates are market-driven and are influenced by a number of factors, including longer-term Treasury yields, the market for mortgage-backed securities, inflation expectations, economic conditions, and investor expectations about where the economy and interest rates are headed.

That means mortgage rates and the federal funds rate can (and often do) move differently.

Importantly, mortgage rates can move before the Fed does

This is the piece that often gets missed in the headlines: by the time the Fed announces an expected rate increase or rate cut, financial markets have often already priced much of that expected move into mortgage rates.

Markets are forward-looking. Investors are constantly reacting to inflation reports, employment data, economic growth and signals from Fed officials. In the days and weeks leading up to a Fed meeting, expectations about what the Fed is likely to do can already be affecting mortgage rates.

So a Fed announcement doesn’t necessarily mean mortgage rates will suddenly move by the same amount, or even in the same direction, that day.

If the Fed does what markets expected, much of that news may already be reflected in mortgage rates. If the Fed surprises the market, or signals something unexpected about what may come next, rates can react differently.

In other words: mortgage rates don’t wait for the Fed announcement to start moving.

Your mortgage rate isn’t just “the mortgage rate”

There’s another misconception worth clearing up: there isn’t one universal mortgage rate available to every buyer.

The rate and loan structure available to you can depend on your credit profile, down payment, loan amount, loan type, loan term, points or lender credits, and other details of the transaction.

This is one reason we encourage our buyers to talk with a knowledgeable lender early, even if they’re months away from actually purchasing. Choosing the right lender matters, and a good lender can model different scenarios rather than simply quoting a rate.

Could a different down payment make sense? Should you consider paying points? Is an adjustable-rate mortgage appropriate for your timeline? Would seller-paid closing costs or a rate buydown meaningfully change the numbers?

There may also be different loan programs and creative financing options worth exploring depending on your situation.

There isn’t one answer for every buyer.

If you already own a home, look at the whole equation

For homeowners, especially those with a low existing mortgage rate, moving can feel particularly difficult. But your current rate is only one piece of your financial picture. You may also have significant equity in your home, and the value of both the home you’re selling and the home you’re buying matters.

This is particularly important for move-up buyers, because you’re moving from a less expensive asset into a more expensive one.

Here’s a hypothetical example using 4% annual appreciation, roughly in line with Alexandria’s average annual home-price appreciation over the past decade:

This example is for illustration only and does not predict future appreciation. Home values can rise or fall, and appreciation varies considerably by neighborhood, property type and time period.

After two years, the $700,000 home has gained about $57,000 in value, while the $1.5 million home has gained about $122,000. The price gap has widened by roughly $65,000.

That’s why a move-up buyer shouldn’t evaluate a move solely by comparing today’s mortgage rate with the low rate they already have. Equity, purchase price, financing and how long you plan to stay in the next home all belong in the conversation.

Waiting has a potential cost, too

The same basic principle applies to anyone considering a purchase: waiting for a lower mortgage rate doesn’t necessarily mean buying will cost less later.

If the home you want becomes more expensive while you’re waiting, you may eventually get a lower interest rate but need to borrow more money to buy it.

Could waiting still be the right decision? Absolutely.

The point isn’t that you should buy now because prices might rise. It’s that you can’t control mortgage rates or home prices, so trying to perfectly time both isn’t a strategy.

So how should you decide?

Start with your life.

Do you actually need or want to move? Has your family outgrown your home? Are you relocating, downsizing, changing schools, looking for a different lifestyle or simply ready for something new? Or does staying put make more sense for you right now?

We’ve written before about the signs you may actually be ready for a new home, because the right time to move isn’t determined by interest rates alone.

Then look at the entire financial picture with the right advisors.

Your real estate advisor can help you understand your current home’s value and the market you’re considering. Your lender can model actual financing and monthly-payment scenarios. And your financial planner can help you understand how a move fits into your broader financial goals.

Sometimes that analysis says move. Sometimes it says wait.

The goal isn’t to rush a decision because of interest rates or stall a move based solely on interest rates. It’s to understand the whole picture and make the decision that’s right for your life and your finances.

So the next time the Fed makes headlines, remember: a Fed rate decision isn’t your mortgage rate, and your mortgage rate isn’t the only factor that determines whether it’s a good time for you to move.

Thinking about buying?

If you’re considering a move, our Buyer Client Resources are a great place to start.

And if you’re trying to decide whether moving now or waiting makes more sense, we’re happy to help you understand what your current home may be worth, what the market looks like where you want to go, and what the different scenarios could mean for you.

Sue Goodhart | sue@thegoodhartgroup.com 

Allison Goodhart DuShuttle | allison@thegoodhartgroup.com 

Phone: 703-362-3221

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