HOW THE FED’S MOVE WILL AFFECT THE REAL ESTATE MARKET

Interest rates are affected by the following three factors: the bond market, the Federal Reserve, and the health of the economy. On December 16, 2015 the Federal Reserve announced that it would be raising the federal funds rate by .25 percent. Here’s how this announcement will affect the real estate market.
What does this mean for the real estate market? Mortgage rates are determined by many factors, but the driving force is the yield on the 10-year Treasury note. Increased interest rates do not necessarily mean an increased yield for the note. Therefore, we should not expect a significant increase in mortgage rates. However even if the interest rate did positively affect the yield of the note, mortgage rates are still at historic lows. The average mortgage interest rate for the last 45 years has been 8%, raising as high as 18% in 1981. Buyers can expect to cash in on these benefit for at least another year. Besides, economist and lenders have predicted that the feds would raise the interest rates sometime this year. The economy saw it coming and has spent the last six months adjusting accordingly.
An Example So let’s run some numbers and see just how much the .25 percent increase will cost a buyer. The monthly payment on a loan of $300,000 at a fixed 30-year rate of 4.375 would be $1497.86. A 25 basis point increase would move your monthly cost up $45.46 to $1,543.32. Would $45 a month keep you from purchasing a home?
Conclusion: winners and losers The fed’s actions will produce both winners and losers. In general rising interest rates help savers and hurt borrowers, so those with money in interest bearing accounts can expect to benefit from higher yields in the future. Debtors and new borrowers will find it more expensive to carry loan balances. However, none of this will happen overnight. Rates will continue to rise over the next couple of years, so everyone will have time to adjust to these changes. The fed’s announcement shows that the decade of historically low interest rates is coming to an end, if you are on the fence about purchasing a new home, I advise you to take action now!

Source: Realty Times