So, what's the deal with the Fed? How does it work and why is it important for you as a home buyer or a home seller?
The Fed stands for The Federal Reserve. The Federal Reserve is a centralized bank for the U.S. Government which allows for flexibility in rates and stability in markets. Previous to the invention of the Fed, markets were widely unstable. The U.S. Government decided to centralize the banking system and thus the Fed was born.
The Federal Reserve has the ability to adjust interest rates and they do this based upon strength of the economy in the U.S. and the world. Typically, the Fed increases the interest rates when the economy is strong and lowers the rate when the economy is weak. This is done to encourage spending when the economy is weak and people are less willing to spend their money.
While the correlation between the Fed's rate and mortgage rate isn't always a direct relationship (this is a heavy, but super informative article), we can say that historically mortgage rates tend to follow the Fed (more about mortgages). The Fed is, and is planning to continue, increasing the interest rates. We haven't yet seen mortgage rates increase but it is likely mortgage rates will catch up.
For home buyers and sellers changes in the Fed can affect the market. Remember that there is a correlation between home prices and mortgage rates that will continuously adjust and that a good REALTOR will help navigate any questions about the current market.
Andrew Howley
Your Chicago REALTOR
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