It seems that there are an equal number of people who believe that the interest rate hike from the Federal Reserve will have very little consequences as there is who believe it will have far reaching consequences. The proposed policy is likely to have an effect on home purchases, home building, investment banking, automobile sales, etc. The Federal Reserve of course assures that the rate increase will be gradual, and won’t have much of an effect if any. Mortgage rates will still be low by historical standards and will be increased gradually over the next few years.
Even in anticipation of the Feds policy rates have rose a quarter percent from 3.75 to 4 percent which has gotten some buyers and sellers thinking. Even a quarter percent increase translates into at least a several hundred dollar increase each year in interest payments. In addition, it could make it harder for some buyers to qualify for a loan. These changes have some buyers rushing out to purchase a home and has others feeling like they have missed their opportunity.
Trying to predict how the housing market will respond when rates are higher is a bit of a guessing game as there are many factors that can influence home buyers. Rising interest rates make it more difficult to borrow money which will inevitably slow home sales which has far reaching economic impacts particularly on banks, home buyers, as well as home builders. When rates are higher the number of new homes built usually goes down. However, when rates go up the price of homes usually goes up as well which could offset the higher interest rates for new starts on home construction making it possible for home builders to make up the difference when they sell the home.
As a landlord or property manager the rate increase could result in higher tenant retention as the ability for renters to purchase a home becomes more difficult. Tenant retention is key to a successful rental business and there are many strategies to tenant retention but often times keeping a tenant has more to do with their economic status. As a real estate investor an increase in interest rates is never welcome when looking to purchase new properties. To look at the brighter side of things the investment properties you do own with loans at the lower interest rate are locked in and will likely see an increase in value as the economy gets stronger.