Federal Reserve Chairman Jerome Powell held his quarterly meeting back on June 13th to give a report about the economy and to let the public know the Fed was raising the interest rate by 0.25%. This is the interest rate at which the Federal Reserve loans to banks. That ends up having a ripple down effect on all the other types of loans including car loans, small business loans and even mortgages.
This rise in interest rate was expected by the mortgage community. The Fed had said early on in the year that there could be as many as four interest rate hikes throughout 2018. So far this is the second rate bump since January. As of the date of this column according to Bankrate.com, interest rates are hovering around 4.4% depending on a number of factors for a 30 year fixed loan. There is no doubt that rates have gone up since the election of 2016 by half a point. This is due to the Fed trying to slow down the economy. You may be asking, “why would you want to slow down the economy?” Because they are trying to control the rising cost of inflation. The Fed likes inflation to stay around 2% nationwide. Runaway inflation leads to high prices for goods and services. Controlling a strong economic engine ensures there is no crash or economic bubble-burst. So what does this mean for real estate and the average person getting a loan?
Most would think that means higher interest rates on home loans, but again as of the date I am writing this column, the market has responded favorably with no noticeable rate hike (this can change at any minute). It’s obvious that lenders and investors on Wall Street were planning for this in their current interest rates. The question will be…are there two more interest rate hikes before the end of the year? That depends on who you talk to. So what does this all mean for all consumers thinking about buying a home and getting the loan?
Here are my conclusions, but by no means are these the right answers. I think the current interest rates and potentially higher interest rates slow down buyers in the lower end markets. For Denver, that means people buying $400,000 and below. I also think the current interest rates and any new hikes will not affect the upper-end markets and the decisions those buyers make i.e. purchases $1,000,000 and above. The interesting part will be what happens with the middle group of buyers, those people purchasing between $500K and $900K. Do these buyers get off the couch and buy before interest rates get worse or do they decide to stay put? Only time will tell.
The good news according to Fed Chair Powell is that the economy is doing great, GDP is almost on a 3% growth and unemployment could be down to 3.5% nationally by the end of the year. This is good news for all and means people are working, making money, providing for their families, starting businesses and expanding businesses.
If you want to discuss with us what you should do with rising interest rates as it relates to your real estate plans, please contact us at email@example.com or 720-446-6325, we would love to speak with you.
Dan Polimino is a Broker/Owner with the Colorado Dream House Team, Keller Williams Realty DTC. Contact the Colorado Dream House Team at 720-446-6325, firstname.lastname@example.org, coloradodreamhouse.com