The Federal Reserve announced it is increasing it’s key interest rate last Wednesday, December 14. Rising interest rates make it more difficult to purchase a new home. The affordability factor is decreasing, while the payments increase. On average, the mortgage rate of your new home is based entirely on national interest rates. Considering what the rates were before 2013, the current rates are pretty low.
The only reason why these rates have been as low as they are is because of the federal interest rate being 0.25% since 2008. As of September 2015, the Federal Housing Agency cited the index rate at 3.93%. While this might still be low, it makes a big difference in your monthly housing payment and how much home you are going to be able to afford.
Recent price increases are a sign that there is an ever-increasing demand for homes that didn’t used to exist. When the mortgage rates start rising after being at an all-time low, it could push some indecisive buyers to make a decision and sign the mortgage papers quickly before the rates end up spiraling out of control.
Individuals looking to sell their home could find it a little more difficult to do so. Someone could be dissuaded from purchasing a home because of the rate hike. However, there are those who could end up jumping into the home just because they are worried that it might be even more difficult to do so down the line. Over the short-term, increasing interest rates are going to put a lot of pressure on those who want to purchase a home but haven’t actually made that final leap to do so.
After the interest rate hike, you could end up seeing a spike in the number of home sales for the next few months. But, that is only going to be a temporary hike. Once the initial hype wears off, you will probably see the number of home sales decline again because there aren’t going to be as many affordable homes on the market as there are right now.
If You Sell Your Home Before the Rates Increase
Individuals looking to sell their current home and step into something different should consider doing so while the rates are low. By quickly selling and purchasing a different home, you can take advantage of the low rates and low mortgage payments. However, there are a couple of things you need to consider when it comes to selling your home. Are you looking to sell your home quickly so you can step into a home that you really want? Are you trying to get as much as possible out of your current home before agreeing to a sale?
While some feel that locking in a low interest rate is critical, others are more focused on the here and now and what they are going to get for their home today. Increasing interest rates are likely the main reason why the demand for homes is declining. Individuals looking to sell their home and purchase another one while the rates are still low will end up benefiting from a favorably low rate.
If You Sell Your Home After the Rate Increase
Once the interest rate rises, mortgage rates are going to end up putting a lot of pressure on the falling home prices in an attempt to keep homes across the country affordable. With mortgage rates and home prices on the rise, it could end up causing a housing bubble and freeze the housing market once again. In the event prices do decline, it will cause homeowners to have to lower their prices just to try to draw more people in.
The housing market today isn’t like it used to be, mainly in part because of the lingering effects of the last crisis back in 2009. A large amount of homeowners ended up getting stuck in a situation where they have no choice but to sell their home for a larger amount just to try to generate a profit. Because of this, many homeowners aren’t willing to sell their homes for less, especially with the interest rates going up.
Depending on the way the housing market goes, there is a good chance that many are going to have to wait five to ten years before they can sell their home for a profit. When homeowners refuse to lower their asking price, it causes even more competition to ensue in homes that are being sold for less.
Likelihood of Future Interest Rates Increases
The whole reason why the Federal Reserve set their rates so low was to encourage more people to get out there and borrow money to purchase a new home. They expected homeowners to purchase and sell their home while rates are down to give the market as much time as it needs to recover from the current financial crisis. Lower rates encourage homeowners to refinance while they are still able to. While the Federal Reserve sees the importance of keeping rates low for now, it is only a matter of time before all of that is going to change. They are giving homeowners the time they need to sell their home and locate a new residence.
You have to determine what is in your best interest, making more money on the sale of your home or locking in a low interest rate on your new home purchase.
Waiting to sell your home until after the rate increase could leave you waiting for quite some time before the home sells. It could also leave you struggling to get the price you want for your home because of the housing demand.
Many homeowners are stuck having to sell their home for a higher amount just to try to turn a profit and get out from underneath their property.
If you are looking to refinance your home, you need to do so while the interest rates are low to take advantage of the savings.
Time is of the essence when it comes to making the decision to purchase and sell your home.