Feds Raise Rates for First Time in 7 Years – So What?
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We have been telling buyers and sellers for years that rates will increase, and after awhile it begins to seem like we’ve been crying wolf.
Today, for the first time in 7 years the Federal Reserve increased the federal funds rate by 0.25%.
The result so far has been an increase in the stock market, with the Dow Jones up 70 points.
This increase comes as a result of the Feds belief that “economic activity has been expanding at a moderate pace.” This along with a decline in unemployment and other factors lead the Fed to the belief that now is the time for this rate hike.
What will this mean for buyers and sellers?
Perhaps not too much in the short term as it appears that lenders had already increased rates in anticipation of this increase. Further, 30 years loans are generally based upon 10 year Treasury note yields. Though it rises as other rates do, it doesn’t rise as steeply.
If the Federal Reserve continues to increase rates, it will likely cause an eventual increase in mortgage rates as well. If that happens, history tells us that housing prices will not increase as rapidly and might even fall as buyers cannot buy as much house as they could at lower rates.
Orange County median home prices have risen from $595,000 to $623,000 over the last year, an increase of 5.2%. So consider that a 1% increase in mortgage rates can cost a buyer a 12% loss in buying power. Depending on how things play out, we could see a change to a larger inventory of homes and more time to get a house sold, or we could see an increasing market as we did in mid-2007 before the housing crash when home prices were rising quickly and rates were in the mid 6’s.
The Federal Reserve’s goal is a strong economy with growth and low inflation. However, it is my opinion that some of the pain caused by the recession was a result of the federal government’s programs and attempts to fix the problem. That said, I don’t believe we can continue to maintain the low rates we have seen more the last many years as our economy recovers though I have enjoyed them as have many others.
What do I recommend to my buyers and sellers?
First, decide if it is the right time to buy or sell. Take a look at what your goals and needs are and decide if this is the right time for you. Rates are still very low by comparison to where they have been over the last several decades. It may be a good time for you to lock in a low rate for the next 30 years. If it is not the right time for you, then it isn’t, and you will just have to wait and see what happens in the market.
If you want to sit down and talk about what is right for you and whether or not it is the right time for you to sell or buy and Orange County home, please call me at 714-319-9751, to schedule a free consultation.