The Federal Reserve’s decision Wednesday to raise its benchmark interest rate to a target range of 3.75% to 4% is rippling through the housing industry.

Real estate brokers and agents are bracing for a market that could further sideline first-time buyers while giving pause to sellers clinging to pandemic-era price expectations.

The unanimous 12-0 vote by the Federal Open Market Committee marked the first rate increase after five consecutive meetings on hold.

Although mortgage rates are tied more closely to long-term Treasury yields than to the federal funds rate, the psychological effect on buyers and sellers is immediate, said Abraham Sarway, a New York City broker for Douglas Elliman.

“It’s a confidence thing for the marketplace — meaning that clients, buyers and sellers are adjusting to a higher rate environment, higher than we’ve seen,” he told HousingWire. “You know, with what’s going on in the world geopolitically, keeping the 10-year Treasury high is also the issue. It’s like a two-for-one, a buyer confidence issue rather than just a knee-jerk reaction price change.”

For agents, the challenge is twofold; managing expectations and keeping deals alive.

“While I don’t expect one Fed meeting to change the housing market overnight, what matters now for Americans is whether their entire financial picture starts to feel more manageable — their monthly housing payment, their paycheck and what they’re spending everywhere else,” said Century 21 President and CEO Mike Miedler. “Affordability isn’t just the mortgage rate you see on the screen; families are making a housing decision alongside the cost of groceries, gas, childcare and everything else in their budget. If today’s decision helps bring those costs down, that matters for housing affordability, too.”

Louis Puopolo — head of Douglas Elliman’s New York City commercial division — said the labor market has not softened enough to offset renewed inflation concerns.

“As long as employment remains relatively resilient and consumer prices continue to rise at an uncomfortable pace, the Fed has greater flexibility to prioritize price stability over employment support,” he said. “In other words, a stable labor market removes the primary constraint on further rate increases, while persistent inflation provides the rationale for maintaining a restrictive policy stance.”

Oil increase spilling into housing, broader economy

National Association of Realtors Chief Economist Lawrence Yun cited continued sharp increases in oil prices and their growing effect on housing.

“Average mortgage rates rose from 6% in late February to 7% this week, ahead of the Federal Reserve’s first rate hike in three years today,” he said. “That’s because inflation picked up after the oil price shock and continuing concerns about unconstrained inflation.

“The whopping, still-growing federal deficit does not help, as more government borrowing means less capital available for the private sector, including for mortgages.”

U.S. and global oil prices are currently trading at near four-month highs — sitting at roughly $97 to $108 per barrel.

This represents a 19% increase over the past month and an alarming 57% surge compared to the same time last year, driven primarily by intensifying conflict in the Middle East.

“Mortgage rates can come down once oil prices retreat and with a credible plan to reduce the budget deficit,” Yun added. “Also, if AI technology boosts worker productivity, then inflation and long-term borrowing rates, like for mortgages, can decline. These developments are highly uncertain, at least in the upcoming months. Expect 7% as the new normal. Job additions will be the one factor that can support homebuying.”

No quick market fix in sight

Sarway stressed that every homebuyer and seller is different and that there is no overarching strategy to mitigate continued rate lock — with or without today’s increase.

“We have to take clients’ overall balance sheet into consideration, as well as their personal lives and where they’re shifting to in that space,” he said. “I don’t think that there’s a way to just blanket advise to an entire seller’s market on how they should [sell] when they have a low rate.

“We do have clients that have those lower rates, and our guidance has been, ‘What does your balance sheet look like now, and what do you need to do to get it where you want it to be?'”

When asked where housing market pressure would show up first if rates stay elevated through the end of the year, Sarway said most people jump to pricing, but values hold on comparables.

“I think it’s more so about transaction volume — how many transactions in the luxury market or how many transactions we’re doing in the overall market week over week,” he said. “When the economic cycle is getting less certain, you’ll notice that transaction volume will go down. A Fed rate hike will, overall, impact somebody’s income, business owners and so on.

“I don’t think pricing will be impacted, especially in the short term. I think that pricing is more impacted by local legislation, like a pied-à-terre tax.”

The Fed’s updated projections showed most officials expect at least one more rate increase before year-end. For housing, that suggests the affordability squeeze is not over — and for brokers and agents, another season of hard conversations.