A Rate Hike is Coming in September. What Does That Mean for Real Estate?

Real Estate property.

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According to a September 7, 2018 CNBC.com article, a strong jobs report in August 2018 is giving the Federal Reserve the green light to raise interest rates.

As a Realtor®, I’m always interested in how interest rates affect mortgage rates and, in turn, housing affordability.

I sat down recently with Certainty Home Loans Branch Manager and Sr. Loans Officer, Joe Garner, to get answers.

Q: Are you expecting to see rate hikes in September and December?   

A: Rate increases are inevitably coming down the pipe. The Fed has announced that there will definitely be one in September, but December is left for debate. The economy is strengthening, but many feel that it is not strong enough to handle much higher interest rates. The fear is that increased rates will lead to more supply of homes on the market and a stale in the real estate business that would force us into a recession. In my opinion, even if we do not see the December hike it will come in the first quarter of ‘19.

Q: How will that affect home buyers?

A: This is good and bad for the consumers currently thinking of purchasing in the next 12 months. The good news is we should not see a dramatic spike in the next quarter, allowing people time to find a home with not much rate change right away. The bad news is the longer than consumers hold off, the greater the chance of hikes will come, and at the same time with inventory low the cost of the home will increase. This increase will lead to a higher payment for the consumer.

Q: How much do you expect interest rates to go up?  

A: September’s hike is already priced into most investor rate sheets.  There should not be much of an increase over the next month.

Q: How does the Federal interest rate affect the rate people can get when they apply for a home loan?  

A: The Federal funds rate is the rate at which large banking institutions borrow funds. It does not directly correlate to a consumer mortgage rate increase per se, however it does indirectly because the banks are paying more to borrow and therefore will pass some of that cost onto the consumer. So a ¼% increase to the Fed rate will not make mortgage interest rates increase ¼%.

Q: What impact will the expected rate hikes have on housing affordability?

A: I have written about this a few times recently. Mecklenburg and Union counties are expecting an increase in home value of 4% year over year. That paired with an increase of what is thought to be another half point by 2019 will drive the average $250,000 mortgage payment up $178 dollars per month.  This will not drive consumers out of the market, but will lower the affordability for sure. With consumers not being able to afford as much, that will  in turn hurt the economy and stall the growth we have seen since the last recession.

Q: What is your prognosis for rest of 2018 headed into 2019? 

A: I feel like we will stay steady through the end of the year, but rates will slowly rise through 2019.

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