Rate hikes: home price and mortgages in 2017

Real Estate

As you likely know by now, the Fed raised their key interest rate on December 15 by 0.25%- the second rate hike since 2006- signaling their overall confidence in the strength of the US economy.

To try and sort out what this will mean for my buyers and sellers, I sat down yesterday with Bob Wade of PHH Home Loans in Newton to get his take. Bob told me that the move by the Fed wasn’t surprising and has been in the works since October, but they waited until after the election to make the move. If you already have a 30- year fixed rate mortgage, your rate can’t change. If you have an adjustable rate mortgage, it could change depending on the terms of your loan. Refinancing might make sense.

Most forecasters predict slow but steady rises in interest rates over the coming 12 months. Bob cautions that like everyone’s, his forecasting skills have been imperfect over the years! He did feel confident though, that given the Fed’s stated intentions to raise rates over the coming year, the cost of 30- year fixed mortgages will rise accordingly, possibly locking out some potential buyers. He also thinks it’s possible Fannie Mae could loosen lending restrictions in place since the last recession- easing requirements, at least in the short term. He explained, “The overall trend will be higher rates which will make it harder to qualify for loans. However, the new administration could ease qualification guidelines which could open up some other opportunities. Case in point: Fannie Mae just increased their maximum loan amounts from $417,000 to approximately $424,1000. That means more people eligible for financing.”

My advice to anyone considering a move- especially if downsizing- is to think sooner rather than later. You will be able to maximize what you take out of your home. My experience selling real estate in this market over the past 30 + years has taught me that typically when interest rates rise, home prices remain relatively flat or even dip. Currently though, there is very low inventory of homes available in this market and prices will likely remain where they are or even go higher in spite of interest rates hikes. This is especially true if the increases are relatively minor as predicted. So the good news is, as a seller, you are in an excellent position. Additionally, I predict that over the coming year or two many more baby boomers will be retiring and wanting to retire and downsize, boosting available inventory which will absolutely increase competition for qualified buyers.

Call me now to start early. Spring is the best time to list and the spring market gets going right after the first of the year. I will help you deconstruct the process, consider options for where to go, and to prepare your home for sale in an increasingly competitive market.