ย 
  • Aaron

Real Estate Investor Series Part 10: Do Mortgage Rates Really Rise With Fed Rate Hikes?

This post originally appeared as the writer's LinkedIn. It has been re-posted and edited here with permission.


With the recent decision by the Fed to raise rates, does that really mean a rise in interest rates? See the Federal Reserve Economic Data (FRED) chart comparing the average 30-year fixed-rate mortgage and the effective Federal Funds rate below:



Two observations from this chart:


๐Ÿ. ๐ˆ๐ง๐ญ๐ž๐ซ๐ž๐ฌ๐ญ ๐ซ๐š๐ญ๐ž๐ฌ ๐ก๐š๐ฏ๐ž ๐›๐ž๐ž๐ง ๐๐ž๐œ๐ฅ๐ข๐ง๐ข๐ง๐  ๐ฌ๐ข๐ง๐œ๐ž ๐ญ๐ก๐ž ๐Ÿ๐Ÿ—๐Ÿ–๐ŸŽ๐ฌ.

๐Ÿ. ๐“๐ก๐ž ๐š๐ฏ๐ž๐ซ๐š๐ ๐ž ๐Ÿ‘๐ŸŽ-๐ฒ๐ž๐š๐ซ ๐Ÿ๐ข๐ฑ๐ž๐-๐ซ๐š๐ญ๐ž ๐ฆ๐จ๐ซ๐ญ๐ ๐š๐ ๐ž ๐๐จ๐ž๐ฌ ๐ง๐จ๐ญ ๐ ๐จ ๐ฎ๐ฉ ๐š๐ฌ ๐ฆ๐ฎ๐œ๐ก ๐š๐ฌ ๐ญ๐ก๐ž ๐…๐ž๐ ๐…๐ฎ๐ง๐๐ฌ ๐‘๐š๐ญ๐ž ๐๐ฎ๐ซ๐ข๐ง๐  ๐š ๐ซ๐š๐ญ๐ž-๐ก๐ข๐ค๐ž ๐œ๐ฒ๐œ๐ฅ๐ž.


To say we are going to see significant rises in interest rates because the Fed is raising rates can be misleading. Mortgages rely more on the 10-year treasury bond; therefore, they do not rise as significantly.


Look at the periods from 2004 โ€“ 2007 and 2016 โ€“ 2019. The average 30-year fixed-rate mortgage increased less than the increase of the Fed Funds Rate.


What does this all mean? Interest rates may likely rise with the Fed's decision to raise rates, but likely not as much as the Fed is planning to raise rates.


One economist has even argued the following:


๐Ÿญ. ๐—ง๐—ฎ๐—ธ๐—ถ๐—ป๐—ด ๐—ผ๐˜‚๐˜ ๐—ฎ๐—ป ๐—ฎ๐—ฑ๐—ท๐˜‚๐˜€๐˜๐—ฎ๐—ฏ๐—น๐—ฒ-๐—ฟ๐—ฎ๐˜๐—ฒ ๐—บ๐—ผ๐—ฟ๐˜๐—ด๐—ฎ๐—ด๐—ฒ (๐—”๐—ฅ๐— ) ๐—ผ๐˜ƒ๐—ฒ๐—ฟ ๐—ฎ ๐Ÿฏ๐Ÿฌ-๐˜†๐—ฒ๐—ฎ๐—ฟ ๐—ณ๐—ถ๐˜…๐—ฒ๐—ฑ-๐—ฟ๐—ฎ๐˜๐—ฒ ๐—บ๐—ผ๐—ฟ๐˜๐—ด๐—ฎ๐—ด๐—ฒ ๐—ถ๐˜€ ๐˜๐—ต๐—ฒ ๐—ฏ๐—ฒ๐˜๐˜๐—ฒ๐—ฟ ๐—บ๐—ผ๐˜ƒ๐—ฒ. ๐—ฌ๐—ผ๐˜‚ ๐—ฐ๐—ฎ๐—ป ๐—ฟ๐—ฒ๐—ณ๐—ถ๐—ป๐—ฎ๐—ป๐—ฐ๐—ฒ ๐—ฏ๐—ฒ๐—ณ๐—ผ๐—ฟ๐—ฒ ๐˜๐—ต๐—ฒ ๐—”๐—ฅ๐—  ๐—ฎ๐—ฑ๐—ท๐˜‚๐˜€๐˜๐˜€ ๐—ผ๐—ฟ ๐—ถ๐—ณ ๐—ถ๐˜ ๐—ฑ๐—ผ๐—ฒ๐˜€ ๐—ฎ๐—ฑ๐—ท๐˜‚๐˜€๐˜, ๐˜๐—ต๐—ฒ ๐—ฟ๐—ฎ๐˜๐—ฒ ๐—ต๐—ฎ๐˜€ ๐—ฎ ๐—ต๐—ถ๐—ด๐—ต ๐—น๐—ถ๐—ธ๐—ฒ๐—น๐—ถ๐—ต๐—ผ๐—ผ๐—ฑ ๐—ผ๐—ณ ๐˜€๐˜๐—ฎ๐˜†๐—ถ๐—ป๐—ด ๐—ฎ๐˜ ๐—ฎ ๐˜€๐—ถ๐—บ๐—ถ๐—น๐—ฎ๐—ฟ ๐—ฟ๐—ฎ๐˜๐—ฒ.


๐Ÿฎ. ๐—Ÿ๐—ฒ๐˜โ€™๐˜€ ๐˜€๐—ฎ๐˜† ๐˜๐—ต๐—ฒ ๐—™๐—ฒ๐—ฑ ๐—™๐˜‚๐—ป๐—ฑ๐˜€ ๐—ฅ๐—ฎ๐˜๐—ฒ ๐—ฑ๐—ผ๐—ฒ๐˜€ ๐—ถ๐—ป๐—ฑ๐—ฒ๐—ฒ๐—ฑ ๐—ถ๐—ป๐—ฐ๐—ฟ๐—ฒ๐—ฎ๐˜€๐—ฒ ๐˜๐—ผ ๐Ÿญ.๐Ÿณ๐Ÿฑ% โ€“ ๐Ÿฎ% ๐—ฏ๐˜† ๐˜๐—ต๐—ฒ ๐—ฒ๐—ป๐—ฑ ๐—ผ๐—ณ ๐Ÿฎ๐Ÿฌ๐Ÿฎ๐Ÿฎ. ๐—•๐—ฎ๐˜€๐—ฒ๐—ฑ ๐—ผ๐—ป ๐—ต๐—ถ๐˜€๐˜๐—ผ๐—ฟ๐˜†, ๐˜„๐—ฒ ๐—ฐ๐—ฎ๐—ป ๐—ฒ๐˜…๐—ฝ๐—ฒ๐—ฐ๐˜ ๐˜๐—ต๐—ฒ ๐—ฎ๐˜ƒ๐—ฒ๐—ฟ๐—ฎ๐—ด๐—ฒ ๐Ÿฏ๐Ÿฌ-๐˜†๐—ฒ๐—ฎ๐—ฟ ๐—ณ๐—ถ๐˜…๐—ฒ๐—ฑ-๐—ฟ๐—ฎ๐˜๐—ฒ ๐—บ๐—ผ๐—ฟ๐˜๐—ด๐—ฎ๐—ด๐—ฒ ๐˜๐—ผ ๐—ถ๐—ป๐—ฐ๐—ฟ๐—ฒ๐—ฎ๐˜€๐—ฒ ๐—ฏ๐˜† ๐Ÿฌ.๐Ÿณ๐Ÿฑ% โ€“ ๐Ÿญ% ๐˜๐—ผ ๐Ÿฐ.๐Ÿณ๐Ÿฑ% โ€“ ๐Ÿฑ%. ๐—œ๐—ณ ๐˜๐—ต๐—ฒ ๐—™๐—ฒ๐—ฑ ๐—ต๐—ถ๐—ธ๐—ฒ๐˜€ ๐—ฎ๐—ป๐—ผ๐˜๐—ต๐—ฒ๐—ฟ ๐˜๐—ต๐—ฟ๐—ฒ๐—ฒ ๐˜๐—ถ๐—บ๐—ฒ๐˜€ ๐—ถ๐—ป ๐Ÿฎ๐Ÿฌ๐Ÿฎ๐Ÿฏ ๐˜๐—ผ ๐Ÿฎ.๐Ÿฑ โ€“ ๐Ÿฎ.๐Ÿณ๐Ÿฑ%, ๐˜๐—ต๐—ฒ๐—ป ๐˜„๐—ฒ ๐—ฐ๐—ฎ๐—ป ๐—ฒ๐˜…๐—ฝ๐—ฒ๐—ฐ๐˜ ๐˜๐—ต๐—ฒ ๐—ฎ๐˜ƒ๐—ฒ๐—ฟ๐—ฎ๐—ด๐—ฒ ๐Ÿฏ๐Ÿฌ-๐˜†๐—ฒ๐—ฎ๐—ฟ ๐—ณ๐—ถ๐˜…๐—ฒ๐—ฑ-๐—ฟ๐—ฎ๐˜๐—ฒ ๐—บ๐—ผ๐—ฟ๐˜๐—ด๐—ฎ๐—ด๐—ฒ ๐˜๐—ผ ๐—ถ๐—ป๐—ฐ๐—ฟ๐—ฒ๐—ฎ๐˜€๐—ฒ ๐˜๐—ผ ๐Ÿฑ% โ€“ ๐Ÿฑ.๐Ÿฏ๐Ÿณ๐Ÿฑ% ๐˜๐˜„๐—ผ ๐˜†๐—ฒ๐—ฎ๐—ฟ๐˜€ ๐—ณ๐—ฟ๐—ผ๐—บ ๐—ป๐—ผ๐˜„.


๐Ÿฏ. ๐—–๐—ผ๐—ป๐˜€๐˜‚๐—บ๐—ฒ๐—ฟ๐˜€ ๐˜„๐—ถ๐—น๐—น ๐—ต๐—ฎ๐˜ƒ๐—ฒ ๐—ฎ๐—บ๐—ฝ๐—น๐—ฒ ๐˜๐—ถ๐—บ๐—ฒ ๐˜๐—ผ ๐—ฟ๐—ฒ๐—ณ๐—ถ๐—ป๐—ฎ๐—ป๐—ฐ๐—ฒ ๐—ฏ๐—ฒ๐—ณ๐—ผ๐—ฟ๐—ฒ ๐˜๐—ต๐—ฒ๐—ป. ๐— ๐—ผ๐—ฟ๐˜๐—ด๐—ฎ๐—ด๐—ฒ ๐—ฟ๐—ฎ๐˜๐—ฒ๐˜€ ๐˜„๐—ถ๐—น๐—น ๐˜€๐˜๐—ถ๐—น๐—น ๐—ต๐—ฎ๐˜ƒ๐—ฒ ๐—ป๐—ฒ๐—ด๐—ฎ๐˜๐—ถ๐˜ƒ๐—ฒ ๐—ฟ๐—ฒ๐—ฎ๐—น ๐—บ๐—ผ๐—ฟ๐˜๐—ด๐—ฎ๐—ด๐—ฒ ๐—ฟ๐—ฎ๐˜๐—ฒ๐˜€ ๐—ฑ๐˜‚๐—ฟ๐—ถ๐—ป๐—ด ๐˜๐—ต๐—ฒ ๐—บ๐—ฎ๐—ท๐—ผ๐—ฟ๐—ถ๐˜๐˜† ๐—ผ๐—ณ ๐˜๐—ต๐—ถ๐˜€ ๐˜๐—ถ๐—บ๐—ฒ, ๐˜„๐—ต๐—ถ๐—ฐ๐—ต ๐—บ๐—ฎ๐—ธ๐—ฒ๐˜€ ๐—ฏ๐—ผ๐—ฟ๐—ฟ๐—ผ๐˜„๐—ถ๐—ป๐—ด ๐—ฏ๐—ฒ๐˜๐˜๐—ฒ๐—ฟ ๐˜ƒ๐—ฎ๐—น๐˜‚๐—ฒ.

9 views0 comments
ย