The Fed Raised Rates. What It Did to Mortgages.

Key Takeaways

• The Fed raised its rate a quarter point on Wednesday, its first increase in three years
• That is not the same thing as mortgage rates going up a quarter point, and Grafton says it is the single most common misconception he deals with
• The move was expected for about three weeks, so it was already priced in before it happened
• For day-to-day direction, Grafton watches the 10-year yield, not the Fed rate
• A market tilting toward buyers is when builders get more willing to cover closing costs or buy down a rate

Summary

Grafton Sizemore opened with what he calls the down and dirty version: yes, the Fed raised interest rates this week. Then he spent the rest of the segment on the part the headline leaves out.

What the Fed Actually Did

The Federal Reserve raised its rate by a quarter point on Wednesday. It is the first increase in three years, which is why it made noise.

Here is the misconception:

"The first common misconception is when people say, oh my gosh, the Fed raised interest rates today a quarter percent, which is what happened this past Wednesday. When they do that, a lot of people immediately go to, well, interest rates are a quarter percent higher. That's not really how it works."

What the Fed actually sets is the rate banks use when borrowing from each other. When that moves, banks adjust their own borrowing power and how much they lend out. It changes the environment. It does not hand your loan a quarter point.

Why This One Was Already Priced In

The market had been expecting this move for roughly three weeks. Grafton's term for it is baked in: by the time the announcement landed, lenders had already adjusted.

"We actually saw interest rates rise a little bit about three weeks ago. They kind of were volatile Wednesday, Thursday, and they probably will be all the way through tomorrow and Tuesday."

The corollary matters more than the announcement:

"Most of your mortgage companies, your mortgage lenders, already baked that in weeks ago. So if you locked in a rate two weeks ago, they already assumed this was going to happen."

Real volatility comes from surprises. If the Fed had raised a half point on Wednesday, nobody was expecting that, and rates would have moved far more sharply. What happened instead was exactly what had been discussed for weeks.

He also pushed back on a second piece of the panic: yes, this is the first hike in three years, but current rates are not dramatically different from where they were a year ago.

What He Actually Watches

"Interest rates and the Federal Reserve rate are not the same thing. Quite honestly, I look more at something called the 10-year yield to find out what's going to happen with our interest rates on a day-to-day basis."

The Part That Helps Buyers

Grafton tied his segment back to Rachel Brantingham's housing numbers. When the market tilts toward buyers, buyers gain leverage, and that shows up most clearly in new construction, which this area has a lot of.

That is when builders, local and national, become more willing to offer seller concessions: paying more of your closing costs, or buying down your rate temporarily or permanently. Those are the conversations that open up in a market like this one.

What He Expects

Asked the question he gets constantly, he answered it straight:

"Do I see interest rates going down massively in the next six months? No, just to be honest, people ask me that all the time. I don't see it happening. But I'll tell you what, we were all wrong during COVID. We were all wrong after COVID. And I sure hope I'm wrong when I say that."

His rough guess at timing, offered with the explicit caveat that he is not bringing politics into it, is that any retraction in the upward trend of the last three or four months would more likely come after the elections and after the turn of the year into early spring.

Meanwhile the phone has not stopped. He is still fielding pre-qualification calls on weekends from people getting ready to make offers, and sellers are still ready to sell.

The Line to Remember

"Fed rate is not mortgage rates."

They have a relationship with each other. They are not the same thing. A quarter-point move by the Fed does not mean your mortgage rate jumped by a quarter point, and it is not a reason to panic.

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