While it looks like the Federal Reserve will raise interest rates, it doesn’t look like it’ll impact the housing market around the country or at Sotheby’s Scottsdale. It’s possible the federal fund's rate will rise to between 0.5% and 0.75% this week. If this happens, it’ll be the first increase of 2016.
Mortgage rates are at the highest level in two years but still at historical lows. Look for that to increase in the coming weeks. But since December isn’t a hot season for the housing market, we probably won’t see an impact, even at Sotheby’s Scottsdale.
Aside from a Fed move, rates on a 30-year fixed mortgage already climbed from record lows after the presidential election. Why? Investors packed the stock market and in turn sold out of the bond market.
This time around, however, there is great debate over whether rising rates really matter to housing. After all, increasing rates are indicative of a stronger economy, and a stronger economy favors housing. As one Fannie Mae economist puts it, interests rates rise due to the economy growing and that means there’s an increase in income which should offset this.
At the same time, a possible interest rate hike this week brings fears about how it will impact housing affordability. Berkshire Hathaway HomeServices found that 76 percent of current homeowners and 79 percent of prospective homeowners quote rising interest rates as a challenge. Even more buyers and owners would feel more uncomfortable if rates were to continue to rise.
One reason higher mortgage rates won’t impact Sotheby’s Scottsdale home buyers and other buyers around the country is large financial institutions have introduced mortgages for as little as one to three percent down in an effort to attract more millennial buyers.
Another survey by Zillow finds that buying a home is not tied to current mortgage rates as much as it is tied to a consumer’s financial well-being. Life events or changes in the number of people in a Sotheby’s Scottsdale household are the main factors for buying a home. Zillow finds, though, that rising rates may impact the location or size of a home that’s purchased.
Mortgage rates have recently gone from 4.25 percent from about 3.5 percent. It was June 2013 when we saw rates move that much. As a result, home sales plunged and house price gains dropped by 50 percent.
This time around, rather than the housing market being impacted, Fed Chairwoman Janet Yellen is more concerned about avoiding what happened to Bank of England Gov. Mark Carney. He came under fire for comments he made that ended with a vote for the U.K. to split with the European Union. She also doesn’t want to get House and Senate Republicans stirred up.
Economists don’t think it’s likely the Feds will change their economic forecasts for interest rates in the next three years. It looks like there’ll be two rate hikes in 2017 and three in 2018 and 2019. The first one in 2017 should come in June.
Believe it or not, some economists think higher interest rates are needed since Congress plans to move forward with tax cuts next year. Rate hikes could help keep this stimulus from becoming inflationary.
So, don’t let rising mortgage rates impact your decision to buy a home at Sotheby’s Scottsdale since rates are still at historically low levels.