Real Estate Insider Blog

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20
Dec
2017

How does the recent interest rate hike affect real estate?

 

Under a federal funds rate increase of 1.25 - 1.50 points, mortgage rates are expected to increase. Hovering around 4%, mortgage rates are projected to inch up slightly, towards 5%, under the new federal interest rates. Rising mortgage rates impact every aspect of buying and selling a home and should be closely monitored by all housing market participants.

Buyers

Generally indicating a stronger economy, a federal interest rate hike suggests confidence in the economy and a need for higher rates to maintain market competitively. From a home buyer's perspective, as interest rates rise, affordability decreases. For example, a buyer who qualifies for a $400,000 mortgage at 4% interest will only qualify for a $355,000 loan at 5% interest. An increase in mortgage interest lowers purchasing power.

Buying a home under the current mortgage interest rates is the best way to maximize purchasing power and lock in lower monthly payments (assuming a fixed-rate mortgage). When the economy is expected to grow and is indicated to be in good health via a federal interest rate hike, the best time to participate in the housing market as a buyer is now. Benefit from the historically low mortgage interest rates and lock in a rate under 5% now.
 

Sellers

Impacting sellers in a slightly different way, rising interest rates drive down housing prices and lower property values. For example, a seller can choose to list a house at $400,000, but rising rates may...

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22
Feb
2017

WILL MORTGAGE INTEREST RATES RISE IN 2017?

Mortgage rates may be trending down at the moment — but what comes down will go up as the year progresses, according to several key housing economists who spoke at the recent International Builders Conference in Orlando.

The forecast by Robert Dietz, chief economist at the National Association of Home Builders, was the worst of the bunch. He expects rates to hit 4.8 percent on average by the end of the year and jump to over 5 percent in 2018.

The forecast offered by Frank Nothaft, Dietz’s counterpart at CoreLogic, is a bit less pessimistic. The former chief economist at Freddie Mac sees rates at 4.6 percent by the end of the year.

And though ex-Fannie Mae Chief Economist David Berson didn’t put any numbers to his forecast, he said three adjustments in the Fed Funds rate this year and four or more next year are certain to drive loan costs higher.

But Berson, who now hangs his shingle at insurance provider Nationwide, said rising rates “won’t have much an impact on housing demand” because strong wage gains and job growth “will give people the wherewithal to offset” the higher monthly costs.

Will inventory improve?

Dietz also sees better years ahead, despite higher rates. He is looking for a 10-percent increase in single-family housing starts this year, to 855,000 units, and a 12 percent jump in 2018, to 961,000 units.

Even at that, though, builders won’t be producing houses at what...

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