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The Million Dollar Question About Interest Rates
Interest rates are overdue for a correction.
All eyes will be on the Federal Reserve today and whether short-term interest rates will finally get the boost we’ve all been expecting for years. The government has been tip-toeing around this issue for so long nobody can really predict when it will happen except that it’s got to happen eventually. Interest rates have been suppressed for way too long. I imagine you probably are a little shocked that a Sacramento Realtor would admit this, but it’s true. Mortgage rates have gotta go up.
Initially, yes, it will be put pressure on the entry-level market, but we need a healthy economy. People forget that we have not quite recovered in Sacramento. We still have homes underwater, we still have tons of those loan modifications that are adjusting right now, and many homeowners struggling to make those higher payments may end up doing the short sale they probably should have done years ago.
Some people who bought during 2007 to 2011 and now selling are making a profit, but those from 2004 to 2007 are still hurting.
Part of the opposition to rising interest rates probably stems from a long comfort level. Once you get used to something, it’s hard to remember the way it used to be. Like having to find a public pay phone when you’re out and need to make a call rather than reaching into your pocket to pull out a cell.
I recall in 1995 when my husband and I took out a loan on our previous home and were so thrilled, absolutely tickled pink to obtain a rate of 8%. Far cry from the double digits. I don’t know about you, but less than 1% return on a money market account or a CD is horrible. You may as well pack your mattress with cash, should you have any, that is.
It’s anybody’s guess where the Fed will move short-term rates today. But experts say the prediction is up, and it seems to be more likely now than previously. We are headed toward an economic recovery, and it sure would be nice to get there. On top of this, remember, historically, people still buy homes in Sacramento in spite of higher interest rates.
Winter Months for Sacramento Real Estate Offer a Window
There’s a hard rain gonna fall, and I’m not talking about the drought in Sacramento but am instead focused on the real estate market coming up over our winter months. Some people are likely on the fence about whether this is a good time to sell and also buy a home. They wonder whether spring would be a better time, when there is typically more activity, more inventory and higher prices. There is one thing you probably haven’t stopped to consider: interest rates.
Interest rates will lead the real estate market next year in 2015.
When the Fed stopped buying bonds, that’s the long-awaited signal that interest rates will begin to rise. Rates have been artificially suppressed for years. They’ve been held down to stimulate the housing market and the economy but we’re just sitting on a ticking bomb. Sooner or later we have to lift our big fat butts off the rates. 2014 rates are already ahead of the average annualized percentages from 2013. And they will continue to go up.
People forget what a normal real estate market is like. They forget when 9% was considered a very attractive interest rate, or maybe they weren’t born yet. As a real estate agent, I have worked through real estate markets in the late 1970s when interest rates hovered at 18%. Interest rates have a huge affect on a home buyer’s purchasing power. Buyers are often too focused on sales prices when they should also pay attention to interest rates.
If a home seller waits until spring to sell her home and buy another, she might get a little bit more for her existing home, but that upleg, her new home, if she’s moving up, will also under those circumstances cost her more. There is no tradeoff there. Economists are predicting a slowing market for next year with appreciation edging toward 4% to 5%, if we’re lucky. If not, prices might remain stable.
But the one thing that is more likely to move than anything else is your interest rate. Consider this, every 1% increase in an interest rate will roughly lose a home buyer about $25,000 of purchasing power. A 1% bump means you may no longer qualify to buy that $300,000 home and must consider those in the $275K range. It’s not like the old days when you could wait for rates to fall and refinance at a lower rate. Those days are gone. Your window of opportunity is today.
