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How the interest rate hikes are impacting current mortgage rates

Posted at 12:14 PM, Feb 03, 2023

(WXYZ) — What is happening in our economy as the Federal Reserve works to fight inflation?

Taking an in depth look at the data, a report from the U.S. Department of Commerce showed that prices are rising at a slower pace. They went up 5.5% year-over-year in November, and 5 % year-over-year in December.

As inflation appears to be slowing, the Federal Reserve this week increased interest rates not by the feared 0.5 percent, but instead by half that. The interest rate paid on reserve balances is 4.65 percent.

At Duffy’s Pub in Auburn Hills, pints are $3.25, a great way to beat inflation. But John Tyrell and Gary Eaken say it is a small win in a losing battle.

"Look at the cost of eggs for crying out loud," said Tyrell.

Eaken says, "I spent $350 last month to heat my house and I keep my temperature at 62 degrees."

As they face higher prices, they are concerned about not just inflation, but how the Federal Reserve raising interest rates again this week to continue to fight inflation will impact their families.

For example, Tyrell’s 22-year-old son is trying to move out.

"And the best they can find for an apartment is $1,100 — and that is outside of where they want to live," he said.

He is advising his son to look for a house to buy instead.

And now new data shows it might be a good idea. For the fourth week in a row, mortgage rates dropped.

So why is this happening? Why as the Federal Reserve is raising interest rates — the cost of borrowing money — would mortgage rates go down? We went to an industry expert for answers.

We asked Alex Elezaj, Director & Chief Strategy Officer at United Wholesale Mortgage, about how the raising interest rates impact mortgage rates.

"It influences interest rates, but it doesn’t set them. At a macro level, mortgage rates are more influenced by the overall economy. And they tend to increase and decrease based on inflation, unemployment and other key economic indicators," said Elezaj.

He also says if you are delaying searching for a home due to relatively higher mortgage rates — you should know lenders have new products — allowing you to buy down the rate for the first two years of the loan.

"It's a great product for people who want to save money up front when you are getting the home," he said.

While the Mortgage Bankers Association says last week mortgage applications decreased 9 percent from one week earlier — Elezaj says lower inflation leads to lower mortgage rates — and that gives him optimism he will be busy.

"So I think we are going to be setting up for a really positive especially, second half of 2023," he said.

Oakland University Business Professor Michael Greiner says inflation is clearly slowing and that when the Federal Reserve increased interest rates at a slower rate this week, it sent a positive message.

"If you look at the expectations that consumers have they are incredibly negative about the economy overall. They believe we are in a recession when we are not, the economy is growing at a fast clip right now over the last two quarters," said Greiner.

Back at Duffy’s, Eaken and Tyrell say they understand why consumers are negative. Even if the economy is growing — price increases continue to hurt.

And divided politics leave them without confidence in our country’s ability to craft an economy for all Americans.

"When the Democrats and the Republicans decide that it is OK for both parties to win, not we have to win and you have to lose," said Tyrell.

How are you feeling in this economy? Email krussell@wxyz.com.