B4 • Friday, July 29, 2022
thegardenisland.com
THE GARDEN ISLAND
FED’S RATE HIKES AND YOUR FINANCES Will it be easier to find a house? Sales of existing homes have dropped for five straight months, while new home sales plunged in June. If you’re financially able to go ahead with a home purchase, you’re likely to have more choices than you did a few months ago. In many cities, the options are few. But the number of available houses nationwide has started to rise after falling to rock-bottom levels at the end of last year. There are now 1.26 million homes for sale, according to the National Association of Realtors, up 2.4% from a year ago.
Christopher Rugaber ASSOCIATED PRESS
WASHINGTON — Higher mortgage rates have sent home sales tumbling. Credit card rates have grown more burdensome, and so have auto loans. Savers are finally receiving yields that are actually visible, while crypto assets are reeling. The Federal Reserve’s move Wednesday to further tighten credit raised its benchmark interest rate by a sizable 0.75 percentage point for a second straight time. The Fed’s latest hike, its fourth since March, will further magnify borrowing costs for homes, cars and credit cards, though many borrowers may not feel the impact immediately. The central bank is aggressively raising borrowing costs to try to slow spending, cool the economy and defeat the worst outbreak of inflation in two generations. The Fed’s actions have ended, for now, an era of ultra-low rates that arose from the 2008-2009 Great Recession to help rescue the economy — and then re-emerged during the brutal pandemic recession, when the Fed slashed its benchmark rate back to near zero. Chair Jerome Powell hopes that by making borrowing more expensive, the Fed will succeed in slowing demand for homes, cars and other goods and services. Reduced spending could then help bring inflation,
GENE J. PUSKAR / ASSOCIATED PRESS FILE
This is a home for sale in Mount Lebanon, Pa., on Tuesday, Sept. 21, 2021. most recently measured at a four-decade high of 9.1%, back to the Fed’s 2% target. Yet the risks are high. A series of higher rates could tip the U.S. economy into recession. How will it all affect your finances? Here are some of the most common questions being asked about the impact of the rate hike: What’s happening with mortgage rates? Higher interest rates have torpedoed the housing mar-
Average US long-term mortgage rates retreat to 5.3% ASSOCIATED PRESS WASHINGTON — Average longterm U.S. mortgage rates retreated this week just as the Federal Reserve announced another big rate hike in its bid to get four-decade high inflation under control. Mortgage buyer Freddie Mac reported Thursday that the 30-year rate fell back to 5.3% from 5.54% last week. One year ago the average 30-year rate was 2.8%. The average rate on 15-year, fixed-rate mortgages, popular among those refinancing their homes also retreated, to 4.58% from 4.75% last week. A year ago at this time the rate was 2.1%. The Fed on Wednesday ratcheted up its main borrowing rate by three-quarters of a point, the second such increase in less than two months. The central bank also raised its benchmark rate by a half-point in May. Rapidly hiking rates risks tossing the U.S. economy into a recession, but it’s the Fed’s most powerful tool to get price increases back to its 2% annual target. Also Thursday, the Commerce Department reported that the U.S. economy shrank from April through June for a second straight quarter, contracting at a 0.9% annual pace and raising fears that the nation may be approaching a recession. The decline that the Commerce Department reported Thursday in the gross domestic product — the broadest gauge of the economy — followed a 1.6% annual drop from January through March. Consecutive quarters of falling GDP constitute one informal, though not definitive, indicator of a recession.
ket. Rates on home loans have nearly doubled from a year ago to 5.5%, though they’ve leveled off in recent weeks even as the Fed has signaled that more credit tightening is likely. That’s because mortgage rates don’t necessarily move in tandem with the Fed’s increases. Sometimes, they even move in the opposite direction. Long-term mortgages tend to track the yield on the 10-year Treasury note, which, in turn, is influenced
by a variety of factors. These factors include investors’ expectations for future inflation and global demand for U.S. Treasurys. Investors expect a recession to hit the U.S. economy later this year or early next year. This would force the Fed to eventually cut its benchmark rate in response. The expectation that the Fed will have to reverse some of its hikes next year has helped reduce the 10-year yield, from 3.5% in mid-June to roughly 2.8%.
ers are already acutely feeling the impacts of higher prices for energy, food and rent,” Smoke said. Used vehicle prices have begun to fall, he noted, and vehicle availability is beginning to return to normal levels. The full amount of a Fed rate hike doesn’t always pass through to auto loans, according to Bankrate.com. New 60-month loans for new vehicles have risen about a percentage point this year to an average of 4.86%, Bankrate.com says, while a 48-month used-vehicle rate rose just under 1 point to 5.38%. What will happen to my credit card?
I need a new car. Should For users of credit cards, i buy one now? home equity lines of credit The Fed’s rate hikes typi- and other variable-interest cally make auto loans more debt, rates would rise by expensive. But other factors roughly the same amount as the Fed hike, usually within also affect these rates, including competition among one or two billing cycles. That’s because those rates car makers, which can sometimes lower borrowing are based in part on banks’ prime rate, which moves in costs. tandem with the Fed. Wednesday’s rate hike Those who don’t qualify won’t likely affect new-vehifor low-rate credit cards cle sales much because might be stuck paying those buyers are mainly affluent customers who won’t higher interest on their balbe squeezed by a relatively ances. The rates on their small uptick in monthly pay- cards would rise as the prime rate does. ments, said Jonathan The Fed’s rate increases Smoke, chief economist for have already sent credit Cox Automotive. By contrast, he said, used- card borrowing rates above 20% for the first time in at car buyers with weaker least four years, according credit who pay higher loan to LendingTree, which has rates could be hurt. tracked the data since 2018. “Many used-vehicle buy-