Hot Take: The Fed Rate Hike Might Actually Be a Good Thing

I know. I know.

You saw the headline:

“The Federal Reserve RAISES interest rates!”

And if you're a home buyer, seller, or real estate agent, your first thought was probably:

“Well, there goes the housing market.”

Not so fast.

On September 16, the Federal Reserve raised its target federal funds rate by ¼ of a percentage point, bringing the target range to 3.75%–4.00%. The Fed says the move is intended, in part, to help bring inflation back toward its 2% goal.

So what does that actually mean for real estate?

Let's break it down without putting you to sleep.

First: What the heck is the Fed rate?

The federal funds rate is basically the interest rate banks charge each other for overnight borrowing.

When the Fed changes that rate, it influences other short-term borrowing costs throughout the economy.

Think of the Fed as the person adjusting the thermostat.

Turn the thermostat up and the economy can cool down.

Turn it down and things can heat up.

And yes, just like your thermostat, everyone has an opinion about what temperature it should be.

But here's an important distinction:

The Fed does NOT directly set mortgage rates.

Mortgage rates are influenced by a whole bunch of things, including inflation, economic conditions, bond markets and investor expectations.

That's why you can have the Fed lower rates and still see mortgage rates move higher—or vice versa.

In fact, the average 30-year fixed mortgage rate was already around 6.76% as of September 10.

So what does this rate hike mean for housing?

The Detrimental Take: Borrowing just got a little tougher

Let's start with the obvious.

Higher interest rates generally make borrowing more expensive.

That can mean:

Higher monthly payments → lower purchasing power → fewer buyers qualifying for the same price range.

And that can put some additional pressure on an already affordability-challenged housing market.

For example, even a relatively small change in mortgage rates can make a noticeable difference in a monthly payment over 30 years.

So, yes...

It's not exactly a buyer's coupon code.

But here's where I think things get interesting.

Three Reasons This Could Actually Be GOOD for Real Estate

1. It could help bring some sanity back to the market

Remember 2021 and 2022?

Multiple offers.

Waived inspections.

Buyers writing love letters to houses.

People offering $30,000 over asking because apparently sleep is overrated.

That wasn't normal.

And while lower rates can certainly help affordability, extremely cheap money can also create enormous demand.

Higher rates can take some of that artificial urgency out of the market.

And honestly?

A little breathing room isn't a bad thing.

Buyers have more opportunity to think.

Sellers have to pay attention to pricing.

And agents have to actually sell homes instead of standing in the driveway yelling, “We have 17 offers!”

That's called a housing market.

2. It could encourage buyers and sellers to focus on the actual deal—not just the rate

Here's something I've been saying for a while:

The interest rate is only ONE part of the transaction.

In a more balanced market, buyers may have opportunities to negotiate things they couldn't negotiate during the frenzy.

Closing costs.

Inspections.

Repairs.

Seller concessions.

Possession dates.

Price.

The house might cost more to finance than it did when rates were 3%, but the overall transaction can potentially be more favorable because buyers aren't competing against half the population of West Michigan and their cousin Larry.

And remember:

You can refinance a mortgage. You can't refinance the price you paid for the house.

Obviously, nobody should buy a home assuming rates will magically drop later.

But a buyer shouldn't automatically eliminate a house simply because today's rate isn't their dream rate either.

3. A rate hike can be a sign that the economy is still functioning

This one gets overlooked.

The Fed's September statement said economic activity is expanding at a solid pace, domestic spending has remained resilient, productivity growth is strong and capital investment is robust.

That's important.

A rate hike isn't necessarily the Fed saying:

“EVERYTHING IS ON FIRE. RUN!”

It's more like:

“The economy is still moving, inflation is still a concern, and we're trying to keep things from getting too hot.”

And that's ultimately what we want.

A healthy housing market doesn't require 3% mortgage rates.

It requires people who have jobs, can afford homes, can get financing, and are willing to buy and sell.

The Bigger Picture

Here's my hot take:

We need to stop expecting the housing market to behave like it did during the COVID years.

Those years were weird.

Historically low mortgage rates.

Massive demand.

Very limited inventory.

Buyers fighting over houses.

Sellers getting offers before the sign was even in the yard.

That was an extraordinary market.

And extraordinary markets eventually end.

What we're seeing now is something much closer to a market where price, terms, financing and negotiation all matter again.

Is a higher Fed rate great for every buyer?

No.

Is it great for every seller?

No.

But it doesn't automatically mean the housing market is doomed either.

In fact, a little normalization might be exactly what the housing market needs.

Because “normal” doesn't mean bad.

It just means we actually have to negotiate again.

And as a REALTOR®, I'm perfectly okay with that.

Thinking about buying or selling?

Don't let a headline about the Fed make the decision for you.

Let's look at your numbers, your goals, your local market and your options and figure out what actually makes sense for you.

Want to know what today's market looks like for your specific situation?

Send us a message. Let's talk.

No hype.

No doom and gloom.

And we promise not to make you write a love letter to a house.

We're here to help you make sense of the market.