The Fed Raised Rates a Quarter Point. Mortgage Rates Rose Twice That.

Oct 1

On September 16, the Federal Reserve raised its benchmark rate by 0.25%, to a range of 3.75% to 4.00%. It was the first increase since 2023, and the vote was unanimous. The Fed pointed to inflation that is still running above its 2% target, driven in part by energy prices.

If you are planning to buy a home, here is what that decision does and does not mean for you.

1. The Fed does not set your mortgage rate

This is the most common misunderstanding I hear. The Fed sets a short-term, overnight rate that banks charge each other. A 30-year mortgage is a long-term loan, and its rate follows the bond market, mainly the 10-year Treasury yield, which is now above 5%.

That is why mortgage rates moved more than the Fed did. According to Freddie Mac's weekly survey, the average 30-year fixed rate went from:

6.76% the week before the hike (September 10)
6.95% on September 17
7.03% on September 24
7.28% on October 1, the highest level since November 2023

The Fed moved a quarter point. Mortgage rates moved about half a point in three weeks.

2. What it costs you

The simplest way to see it is buying power. A buyer whose budget supported a $700,000 loan at 6.76% can now borrow about $664,000 for the same monthly principal and interest at 7.28%. That is roughly $36,000 less house for the same payment, about 5% of your buying power, in three weeks.

This is an illustration based on Freddie Mac's national average rates. It is not a loan offer, it does not include taxes, insurance, HOA dues or fees, and your actual rate and APR will depend on your credit, down payment and loan program.

3. The part most people miss: less competition

When rates rise, some buyers step back and wait. That leaves fewer people bidding on the same homes. For buyers who are qualified and ready, that often means:

Fewer multiple-offer situations
More room to negotiate on price
Sellers who are more willing to pay closing costs or credit money toward a rate buydown
Time to do proper inspections instead of waiving them to compete

High rates are a cost. Less competition is an opportunity. If you are qualified, you can often negotiate a better deal now than you could when rates were lower and every listing had ten offers.

4. Market average is not your rate

The Freddie Mac number is a national average. It is not the best rate available to you. I work with lenders who have programs that can bring a buyer's rate well below today's average, for example through:

Rate buydowns, including buydowns paid with seller credits
Adjustable-rate and other loan programs
Paying points at closing

Every option has trade-offs, and the right one depends on your situation. If you want an introduction, I will connect you with a lender who will give you a written quote with the full terms and APR so you can compare options side by side.

5. What I would do as a buyer right now

Update your pre-approval. If it was issued before September 16, the numbers have changed.
Lock your rate once you are in contract. Rates have moved up every week since the hike.
Ask for seller credits. In this market, a credit toward a rate buydown can be worth more to you than a small price reduction.
Do not buy based on a future refinance. Rates may come down, or they may not. Buy a home you can afford at today's rate.

Bottom line

Higher rates make buying more expensive, and I will not pretend otherwise. They also thin out the competition. For a qualified buyer with the right loan structure, this can be a better time to negotiate than the market headlines suggest.

Want to see what today's rates mean for your budget? Send me a note and I will put the numbers together for you.

Sources:

Bassem Elsayeh
REALTOR® | REeBroker Group | CA DRE #01901933

I am a licensed real estate agent, not a mortgage lender or financial advisor. Nothing in this post is an offer of credit or financial advice. Please consult a licensed mortgage professional about your specific situation.

Bassem Elsayeh