Market Fears


As I keep introducing new homes to potential buyers, I keep hearing the same apprehension about whether they are going to buy a home:

“With the interest rates so high, we may just need to wait to see what happens.”

“I just want to wait to see what happens with the interest rates before we make a decision.”

The truth is that people are afraid of what the market will do. So many references to the affects following the housing market crash of 2008. Many buyers are concerned that they will lock in their new homes at these “inflated” interest rates and the value of their homes are going to crash and burn soon. This fear is propelled by the media’s interpretation of many of the political influences and factors that we see strewed over social media and news outlets.

Let’s be clear:

Yes, the interest rates are rising, political agendas are fueling the fears in spending which will result in a reduction of demand and thus the value in homes and kink the effects of the housing market since the pandemic.

Does it mean that this is a bad time to buy a home? Does this mean that you are currently paying premium prices for homes with a crash on the horizon? Well, that depends on what you think about history repeating itself…

These are times unlike anything we have endured in modern day. Let’s look at some of the statistics before staking a claim as whether the interest rates are really going to break us.

What are the interest rates for and how do they affect us?

Lead writer Cara Smith at NerdWallet published an article in December 2022, defining and elaborating what the Federal Rate is. Banks are legally required to hold a limited number of moneys as regulated by the Board of Governors of the Federal Reserve System (2015). Due to banks limited supply of funds, they follow procedures to regulate their surplus. Banks loan the surplus of funds to other financial institutions that have not met their needs for investing purposes. These loans from bank-to-bank have interest rates so that the lending institution is generating a capital gain on their loans, yet still regulating their limit. Essentially, as the federal funds rate rises it increases the interest rates that banks offer to borrowing institutions, who then increase the rates offered to borrowers for credit cards and mortgages, amongst other lending types (Smith, 2022). This is often associated with combatting the effects of rising inflation, which affects the public’s spending and investing, and thus the borrowing practices.

It is important to note that the mortgage interest rates are not set by the Federal Reserve, but they are indirectly affected by the Fed Reserve’s changes in rates.

When lenders are estimating what your mortgage rates are going to be for a home loan, they must factor the interest to principal proportion and whether you can afford it based on your gross income and debt-to-income (DTI) ratio. Really, the banks are ensuring that you qualify for a long-term financial investment, and they do need to make a return on their investment into you and your home venture. These returns are based on the risks associated with their return on the loan.

As of the writing today, the Federal Funds Rate is 4.33% (a 13.05% increase from December 14, 2022) and the Treasury long-term average (over 10 years) is 1.43% ( a -19.66% change from close of day on 12/30/2022) as reported by the Board of Governors of the Federal Reserve System (2023).

If we look at the Treasury Long-Term Average (over 10 years) on a monthly basis, we can see the following:

· Year’s end 2018 Fed-rate 1.17%

· Year’s end 2019 Fed-rate 0.48%

· Year’s end 2020 Fed-rate -0.43%

· Year’s end 2021 Fed-rate -0.49%

· Year’s end 2022 Fed-rate 1.54%

Figure 1 (Treasury long-term Average (over 10 years), 2023)

The most important factor to consider with the data shown in Figure 1 is that during the time that the rates were negative, we were enduring the effects of the global COVID-19 Pandemic. Integral purpose of negative interest rates is they are normally set by central banks and other regulatory entities to help turnaround an economy where consumers are saving more than spending (Rasure, 2021). This deflation method is caused when demand is on the downward trend and supplies are on an upward trend, thus shifting the response to stimulate the economy to entice more consumers to invest their savings.

Why is this important?

The importance of the variating interest rates is indicative of the health of an economy. When spending is out of control and there are inflating prices, it is critical that the Federal Reserve account for the effects of a continuously climbing market.

Ever heard of growing too fast to sustain?

There must be a balance within an economy. Otherwise, then we face potential catastrophe due to economic hysteresis.

Honestly, the importance of the shift in interest rates is purely subjective and is not entirely an increased risk indicative of a crashing economy. There are, of course, other factors that influence the risks of a recession.

Will home values begin to deflate? Probably, but not permanently.

The median home prices over the last 50 years have seen prices fluctuate up and down. Ultimately, the housing market has dipped following worldwide events throughout history. Home values dipped following US occupancy in Vietnam, during the early 1980s recession, following the start of the Persian Gulf War of the 1990s, and again after the collapse of the 2008 housing market (Historical US Home Prices: Monthly Median from 1953–2022, 2022).

All this data, and yet, is it still an advisable time to buy a home?

Unfortunately, the answer is not that simple. There are too many factors for there to be a one size fits all. The most important step to take is to conduct your own research! Preliminary research will set you up for success! If you think you are ready, let’s take this leap together and find you the outcome that fits your needs!

Brandon Lara

The Jason Gorman Team at Keller Williams Premier Realty

License #40842414

Mobile: (831) 296–9933

Office: (651) 379–5252

[email protected]


Board of Governors of the Federal Reserve System. (2015, December 16). What is the money supply? Is it important? Retrieved from

Board of Governors of the Federal Reserve System. (2023, January 20). Data Download Program. Retrieved from

Historical US Home Prices: Monthly Median from 1953–2022. (2022, October). Retrieved from

Rasure, B. (2021, October 20). What Is a Negative Interest Rate, and Why Would We Have Them? Retrieved from,than%20receiving%20positive%20interest%20income.

Smith, C. (2022, December 14). What Is the Fed Rate? Retrieved from