How Rising Interest Rates Are Affecting The House Market And So Much More
As the world becomes more removed from the global pandemic that COVID-19 caused, people are regaining a sense of normalcy in every aspect of their life. However, interest rates have continued to rise regarding purchasing goods and services. Before September, interest rates had already increased four times in 2022. Again on September 21, the Federal Reserve raised interest rates for the fifth time this year. This increase brings it to a range of 3% to 3.25%, making it the highest since 2008. While the hope this that increasing interest rates will decrease inflation prices of goods and services, it will also increase the cost of debt for credit cards, vehicle financing, mortgage rates, and other loans. With interest rates rising, the central bank advises customers to limit their spending as much as possible.
Rising interest rates will not impact your loan if you have a fixed-rate mortgage. However, your monthly payments could increase if you get a new mortgage or have a variable-rate mortgage. With consistently growing interest rates, right now does not seem like the most ideal time to buy a house, and it may not be anytime soon. According to Rocket Mortgage, mortgage rates are likely to continue to rise going into the rest of this year. Just a year after mortgage rates were historically low at the beginning of the end of the pandemic, mortgage rates are now over 5% for the first time since December 2018.
As mentioned earlier, the spike in interest rates will affect several areas of the economy but is currently seen as the most viable way to ease inflation over time. On Wednesday, Federal Reserve Chairman Jerome Powell acknowledged that no one has an idea if the plan of action to increase interest will lead to a significant recession. “I think there’s a very high likelihood we will have a period of … much lower growth, and it could give rise to an increase in unemployment,” he said. Powell also acknowledged that there could be a significant increase in unemployment.
Interest rates spiking also affects our credit card’s annual percentage rate (APR), which determines how much interest you pay for any outstanding debt not paid off by the end of the month. When interest rate hikes began in early 2022, the average APR was around 16% and jumped to 18% throughout the rest of the year. According to Bankrate.com, the average credit card APR could reach closer to 19% with the latest increase. Interest rates spiking do not affect fixed-rate car loans that already exist. However, they increase interest costs for new auto loans or variable-rate financing. At the beginning of 2022, the average interest rate on a 60-month new car loan was 3.85%. According to Bankrate, the interest rate could jump from around 5.5% to 5.75% with the latest increase.
As we reach the latter half of the year, consumers are hopeful that Q3 and Q4 will be nicer to them and that inflation will begin to decrease.. This result will play a significant role in helping prevent interest rates from rising for the sixth time at the next Federal Reserve Meeting (FOMC) scheduled for November 1–2.
