What You Need To Know About Federal Interest Rate Increases
Presented by: Ryan Liebelt of Fairway Independent Mortgage
A group of Federal Reserve officials, commonly referred to as The Fed’s, are a group of Federal Reserve officials who generally meet 8 times a year and as part of their agenda determine whether the short term interest rates should remain unchanged, or warrant either an increase or decrease in rate. The short term interest rate is set for monies borrowed for less than a year (typically back and forth between banks). Short term rates don’t directly affect mortgage rates but because they can influence the Bond prices, which DO affect mortgage rates, there is a very good correlation between the rise and fall of short term and mortgage rate changes.
Before the .25% rate hike in December, short term rates had been near zero for the past seven years. They were kept low intentionally to allow for growth in the market through, by providing cheaper costs to borrowers and the employment that this tends to create. As the overall national economy continued to show relative signs of improvement, the Federal Reserve turned their focus towards raising the rates, to keep inflationary pressure in check. That time came about after their December meeting. The increase was expected from almost everyone within the financial markets and was already somewhat buffered in. It is aslo expected that there will be further increases this year.
Let us put this into perspective; on a $300,000 loan, the difference in monthly Principal and Interest payments between rates of 4.0% vs 4.25% is only $43.37 per month. Now, while no one prefers to spend more money each month, it’s not likely to change the average home buyers decision to buy a home when the difference is less than a dinner out for two in most cases.
So, when is a good time to buy? Should I wait? Will prices come down? The answers to these questions will vary, but generally speaking, the recent appreciation in the Colorado market is a sign of simple supply and demand economics. Due to the economic circumstances between 2008 and 2014 there was almost no new construction that took place (supply), compound that by a swelling state population of new home buyers (demand), and the stage was set for impressive Real Estate appreciation.
Between 2014 and 2015 the IRS reported just over 101,000 more NEW tax returns that listed Colorado as their home state! In 2015 that number dropped, but still represented an increase in population of roughly 76,000. As a result, there are many that are convinced that further appreciation and price increases will continue. The result of postponing ones purchase of a home could likely be a higher rate AND overall cost. Finally, rent prices statewide are rising to record levels. So, in most cases, it is more affordable to OWN a home than it is to RENT one. For these reasons, I feel that the time to buy a home is now.
All in all, buying real estate is an investment in yourself, your future, and your financial wealth management. Through all of the ups and downs in the market, homes are worth substantially more now than they were 30 years ago. The American population will continue to grow and raise new families, which will increase the need for more housing. If you own a home you will build equity because of that simple fact. You also can’t forget the greatest part of home ownership, being able to customize your environment and call it YOUR OWN!
Fairway Independent Mortgage