I GET ASKED THE QUESTION ALL THE TIME "SO WHEN ARE INTEREST RATES GOING UP?" AHHH, THE MILLION DOLLAR QUESTION RIGHT?? NEVERTHELESS IF YOU'RE IN THE MARKET TO ANY DEGREE WHETHER TO FINANCE REAL ESTATE OR OTHERWISE, IT'S AN IMPORTANT ONE OF COURSE. TO BE CERTAIN, THIS ISSUE HAS BEEN tabled WITH THE ALL-POWERFUL FEDERAL RESERVE FOR YEARS NOW... LIKE 8 YEARS!!
And for nearly 8 years (with the exception of December 2015), they've kicked the can down the road when it comes to if, when, how, and why to raise rates.
Firstly, you should know that I'm speaking specifically in a context relating to real estate and it's financing only. With that in mind, a 'Rate-Hike' as pitched by the news media and Federal Reserve doesn't necessarily mean mortgage rates. For this article's purpose, it's only important to know that the particular interest rate that the Fed's are alluding to is defined as the FED Funds Rate. The FED funds rate can simply be viewed as the base rate that determines the level of all other interest rates in the US economy. In other words, it's the BIG gorilla. And the bottom line is that the higher the FED Funds rate, the more expensive it is to borrow money... PERIOD. So in sum, while the FED Funds rate doesn't necessarily equate to what interest rate you pay for your mortgage, they ARE indirectly related.
So practically speaking, what does this mean for you in terms of home prices and getting financing for buying real estate? And furthermore, when will these rate hikes really take off? Well, the short answer is, it's anyone's guess and it all depends on the perceived health of the economy in the eyes of the Federal Reserve at any given snapshot in time. Let's face it... right or wrong, these guys are POW-ER-FUL. Let's boil it all down into a few simple factual elements that I really hope will help you make some great decisions.
- Interest rates are ridiculously low right now and nobody knows when they will go up. All indicators are that it will be very soon. I mean, they DID pull the trigger already in December 2015 and hiked upward .25%. It didn't really affect the mortgage market because it was already priced into the equation, but we may not be so lucky in the future. So why on earth wait? Take advantage!
- If you're sell-minded, it may be best to SELL NOW! It's no secret that it's probably a given that when rates really do go up, it will cause your home values to go down or at a minimum taper significantly. Do you really want to place that kind of a bet? It also stands to reason that folks won't be able to qualify for as much when rates go up and that equates to a smaller pool of perspective lookers/buyers.
- If you're buy-minded (and need financing), it may be best to BUY NOW! Yes, prices may come down, but it's all about the interest when you need to get a mortgage. Spending a bit more cash-wise up front is a far better alternative to a significantly higher interest rate. The math wins out. For some thoughts on that front see my blog titled 'Save A Nickel Spend A Dime?'
As always, if you have any thoughts, comment below. We'd love to chat. Our foremost concern is YOU! Let a proven company help shed light on a sometimes dark path.