In most U.S. housing markets, owning a home still costs less than renting, despite skyrocketing median home prices, according to a new study. In 58 percent of the 1,154 U.S. counties studied using data from the U.S. Department of Housing and Urban Development and the Bureau of Labor Statistics, owning a median-priced home was more affordable than renting a three-bedroom property on average, according to an ATTOM Data Solutions report released on Thursday, the 6th of January!

Renting, on the other hand, was determined to be the most cost-effective option in the majority of large urban locations. “Home prices are rising faster than both rents and wages, while wages are rising faster than rents. Because of this, property values have reached new highs, as Attom’s Chief Product Officer Todd Teta said in a press release.

Because it still takes up less of their wages, home ownership is still the more affordable option for most employees in a large chunk of the country.” However, growing wages and low mortgage rates have offset the effect of rising property prices in nearly 90% of the country.

Home prices rose an average of 1% across the country last year, but income growth has averaged 8%, and mortgage rates have held steady at approximately 3%.

According to the survey, home prices are rising faster than salaries in much of the country. There are counties with over a million inhabitants that have discovered that renting is more cost-effective than buying in the nation’s most populated metropolis, whereas suburban and rural areas found that buying was their most cost-effective option.

In 35 of the 42 counties with a population of one million or more people or more studied in the survey, renting is more affordable than owning, including Los Angeles, Chicago, Phoenix, San Diego, and Orange County. Houston, San Antonio, Detroit, Philadelphia, and Tampa, according to Attom, are all less expensive for homeowners.

The rental and ownership markets in the South and Midwest are still the most cost-effective, while those in the West and the Northeast are among the most expensive in terms of both renting and owning a property.

TETA forecast that renting will become the most cost-effective alternative, but income growth and low mortgage rates will keep homebuying in favor for the time being. Renters could have a big role in slowing price increases in 2022, as the pattern is gradually shifting.” There’s only a certain amount of price inflation left until renting becomes more affordable,” he asserted.

However, rising incomes and interest rates of approximately 3% are enough to offset recent price increases and keep ownership on the more affordable side compared to renting at least for the time being,” says the report.

I have been asked almost every day for the past three weeks when the Federal Reserve raises interest rates how will it effect mortgage rates. I found that Holden Lewis describes these questions fairly clearly. I will be posting some more about Mortgage rates and some projections soon.

The Federal Reserve is one of many influences on mortgage rates, along with inflation, economic growth and other elements.

The Federal Reserve doesn’t set mortgage rates, but it does affect mortgage rates indirectly.

Mortgage rates are determined by many elements, including the inflation rate, the pace of job creation, and whether the economy is growing or shrinking. The Federal Reserve’s monetary policy is a factor, too, and is set by the Federal Open Market Committee. Click here to see current mortgage rates

What the Federal Reserve does

The Federal Reserve is the nation’s central bank. It guides the economy with the twin goals of encouraging job growth while keeping inflation under control.

The FOMC pursues those goals through monetary policy: managing the supply of money and the cost of credit. Its main monetary policy tool is the federal funds rate, which is the interest rate that banks charge one another for short-term loans. Although there’s no such thing as “federal mortgage rates,” the federal funds rate influences interest rates for longer-term loans, including mortgages.

The FOMC meets eight times a year, roughly every six weeks, to tweak monetary policy. Most meetings result in no change to the federal funds rate. At the conclusion of each meeting, the committee releases a statement explaining its reasoning. Three weeks later, the meeting’s minutes are released, serving Fed nerds even more details.

Do mortgage rates follow Fed rates?

The Fed and the mortgage market move like dance partners: Sometimes the Fed leads, sometimes the mortgage market leads, and sometimes they dance on their own.

The federal funds rate and mortgage rates usually move in the same direction. But it’s hard to say whether mortgage rates follow the Fed’s actions or the other way around

The FOMC prefers to give investors a heads-up whenever it plans to raise or cut short-term interest rates. Members of the committee advertise their intentions by sprinkling hints into their public speeches. By the time the committee meets, there’s usually a consensus among investors as to whether the Fed will cut rates, raise them or keep them unchanged. As that consensus solidifies before an FOMC meeting, mortgage rates usually drift in the direction that the Fed is expected to move. Often, by the time of the meeting, mortgage rates already reflect the expected rate change.

At the same time, mortgage rates move up and down daily in reaction to the ebb and flow of the U.S. and global economies, which are the same developments that the Fed responds to. Occasionally, the Fed and mortgage rates move in opposite directions.

What is the current federal funds rate?

The target federal funds rate has been a range of 0% to 0.25% since an emergency rate cut on March 15, 2020. The emergency was the COVID-19 pandemic and the disruption in economic activity that resulted.

“The effects of the coronavirus will weigh on economic activity in the near term and pose risks to the economic outlook,” the rate-setting committee explained.

The Fed began to buy hundreds of billions of dollars’ worth of Treasurys and mortgage-backed securities to keep cash in the financial system and to keep long-term interest rates down.

In its regular meeting ending Dec. 15, 2021, the FOMC said “indicators of economic activity and employment have continued to strengthen” due to progress on vaccinations and strong policy support. It added that a resurgence of COVID-19 cases has slowed the economic recovery.

The central bank reiterated that it aims to achieve an inflation rate of 2% over the long run. Because the inflation rate has exceeded 2% for a few months, the rate-setting committee said the Fed would curtail purchases of Treasurys and mortgage-backed securities. These bond purchases, designed to hold down interest rates, are likely to end in March 2022.

After ending the bond purchases, the Fed is expected to raise the federal funds rate for the first time since 2018. Three or four quarter-point increases are expected, according to the committee’s projections.

Federal funds rate and HELOCs

HELOCs Home Equity Line of Credit.

Although the Fed doesn’t determine mortgage rates, it does have a direct influence on the rates charged on home equity lines of credit, which typically have adjustable rates.

Interest rates on HELOCs are linked to the Wall Street Journal prime rate, which is the base rate on corporate loans by the largest banks. The prime rate, in turn, moves with the federal funds rate.

When the FOMC cuts the federal funds rate, interest rates on HELOCs go down, too. The March 15, 2020, reduction of one percentage point saved $100 a year — or $8.33 a month — on the interest-only payment of a HELOC with a $10,000 balance. It reduced the prime rate to 3.25% from 4.25%.

About the author:Holden Lewis is a mortgage reporter and spokesperson who joined NerdWallet in 2017. He previously wrote for Bankrate. He has written articles about mortgages since 2001. He has been president of the National Association of Real Estate Editors and has won writing awards from NAREE, the Society of American Business Editors and Writers, and the Society of Professional Journalists.