November 05, 2018
Fed Raising Interest Rates Means Higher Bar for Obtaining Mortgages
On the 26th of September, the Federal Reserve moved to raise the target range for the federal funds rate from 2 to 2.2 percent. This is likely to affect the real estate market in some fairly predictable ways, at least while the market is behaving normally.
In considering whether to make this rate-change move, the Fed’s Open Market Committee took a number of economic elements into consideration:
“Information […] indicates that the labor market has continued to strengthen and that economic activity has been rising at a strong rate. Job gains have been strong, on average, in recent months, and the unemployment rate has stayed low. Household spending and business fixed investment have grown strongly.”
Naturally, the Committee’s decision will have a more dramatic effect on people with existing Adjustable-Rate Mortgages and Home Equity Lines of Credit than on those owners who managed to lock-in rates at the time they purchased their properties.
Of course, this also poses the possibility of sending incrementally higher the baseline rates available for those looking to lock in going forward.
The Fed also has plans to lower its number of holdings in mortgage-backed securities and treasuries. These longer-dated securities are linked even more closely to the mortgage market, because when the demand for these sorts of securities reduces, we find upward pressure applied to interest rates.
While this summer’s real estate market may have seemed soft as compared to some of the predictions we saw going into the season, the fact is more sales were made this year than last. Which is to say, demand remains, even if the high water mark on asking prices has begun to fall. In a market like this, it can be hard to say just how rising mortgage rates may affect property sales overall, but one thing is certain: those on the lower end of the market, who might have been able to just break in, are likely to face more hurdles going forward.
Either way, if you’re looking to go to closing on a property in Pensacola, Florida; Providence, Rhode Island; Duxbury, Massachusetts, or any other city in one of these three states, give us a call. Here at Topouzis & Associates, P.C., we’re experienced at title searches, and we are supported in supplying title insurance by numerous underwriters. We’ll put our vast experience to work for you, ensuring clear sailing through the closing process and beyond.