The elephant in the room finally waved its trunk: the Fed raised interest rates. Inquiring minds want to know, "how will that affect me?". How will it affect real estate in Northeast Los Angeles communites like Eagle Rock, Highland Park, Mt. Washington and South Pasadena?
Let's look at the facts!
The interest rate that the Fed (FOMC, the Federal Open Market Committee) raised 1/4% yesterday is the rate that banks charge each other for borrowing funds very short term, like overnight. The first loans that regular people will see affected are variable rate loans, such as adjustable mortgage or student loans. Fixed rate loans that are already in place will not be affected for the life of the loan. So if you have a 3.2% 30-year fixed rate on your home, you can sit tight and feel safe and smug. However, if you want to move, you will be looking for a new loan and be subject to current market rates.
The Fed rate affects long-term rates like mortgage rates slowly, over several months' time. There isn't a set increase that happens to mortgage rates when the Fed raises their rate, because mortgage rates are dependent on supply and demand and other market influences. For example, if the economy went down and unemployment went up, rates probably wouldn't go up much because fewer people would be buying homes and applying for loans. This would be balanced by fewer homeowners wanting to move, so we would see a shrinking inventory to go with shrinking demand, resulting in perhaps a smaller marketplace but not a lot different than what we see today. This would make it even harder for the buyers who are still able to buy because they would have even less to choose from. We wouldn't see banks raising mortgage rates because there would be less demand for them.
Here is what Bankrate.com says are the average rates for a new 30-year fixed mortgage today, Thursday, December 17:
How will slowly rising mortgage rates affect home prices? If you were in the market today, wouldn't you want to hurry and lock in a relatively low rate? I certainly would. This urgent demand would drive prices up, especially now, when inventory is generally pretty low. Even if we see smart homeowners putting their homes on the market in the next few weeks, supply in our marketplace will be outnumbered by demand as it has been for several years now. And for buyers who don't want to jump into the multiple offer rat race, they will see almost certain price increases in the coming months and years. Give us a call if you'd like to discuss this further!