This week the
Federal Reserve Bank raised interest rates by a quarter of a percent or
25 basis points. This move comes after almost 8 years of rates near or
below zero, and signals new confidence in US and global economic growth.
Despite a rough 4th
quarter in 2015 spurred by uncertainty in Chinese economy and external
events like terrorism; The Fed feels the time for a rate hike has come.
US unemployment has held at 5% helped by steady job growth over the last
few months including 211,000 new jobs in November, just short of the 12
month average of 237,000.
The rate hike means
that regional and local banks will now have to pay more for the cash
that they borrow and at the end of the day this affects consumers. One
reason consumers may feel the sting is that despite banks charging
higher rates, they are not paying out higher rates on savings or
retirement accounts. This is a trend that we have seen in Europe as well
and is upsetting for who rely on bank interest to grow their money.
With the rate hike
set to shake things up in the domestic and global markets, the question
remains: how will the hike affect the Real Estate industry? Often it is
said that Real Estate is a Local business so, the Fed's move may seem
irrelevant, but the effects may be more subtle than expected.
Fixed mortgage rates
should not see a radical departure from their current place between
3.75 and 4.25 for 15 and 30 year mortgages respectably. Variable rate
mortgages on the other hand will be more reactive.Variable rates are
likely to rise as the rest of the short term credit sector's rates do as
well. This means auto-loans and credit cards are sure to rise as banks
scramble to adjust.
Since fixed
mortgages are tied to the bond market, their rates will change more
slowly and real evidence of whether or not they will make a departure
from their current position will only be evident after the first quarter
of 2016. Despite this, savvy investors may consider refinancing soon to
insure a lower rate. With the mortgage rates bound to move slowly
though, home buyers will likely see no more than 3 to 4 hundredths of a
percent increase in their total amortized mortgage cost.
Nervous you may have
missed the boat to buy refinance? Fear not. The upcoming spring market
will be a fervent one with sellers bringing their homes back on the
market after the cold months and with Fed hike ramifications likely not
taking effect until later in the year.
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