Real Estate News

Responding to the possible changes in interest rates

Published: 06 Feb 2017

New changes to the housing market, including higher interest rates than previously seen, could be a shock for incoming buyers to the marketplace. However, there seems to be differing opinions over the actual impact of an interest rate hike.

As of January 30, MarketWatch reported that the Federal Reserve actually was not set to make any interest rate changes as the latest fiscal policy details still had to settle. As the source said, the Reserve had already increased these rates in December, and that before that point, rates had been relatively rare. The decision could hinge upon how the current Congress conducts itself on financial matters.

Possible downsides of interest hikes
An obvious concern for higher interest rates could be drops in investment, as buyers react unfavorably to the higher prices. National Real Estate Investor spoke to Matthews Real Estate Investment Services Vice President and Senior Investor Gary Chou, who denied that the interest hikes have had a greater effect on the housing market, at least as of now. This does, however, have the potential to change.

"Overall, it hasn't had a huge effect on demand or pricing quite yet," Chou said. "But that is something that we certainly expect to see a little later down the road."

He also added that "buyer demand is very strong," countering the possible fears of a slow down. The article said that new rates could potentially create a disconnect between the buyer and the seller. Still, the actual impact of the hikes seem to be slow-acting.

Possible upside of interest hikes
There are some foreseeable advantages to rate increases, according to The Mortgage Reports, at least for prospective home buyers. These mostly have to do with available capital and loans, as future owners see more lax guidelines, stronger incentive to choose a government loan or better conditions for the economy as a whole. In addition, the change could offer a new playing field for buyers to work with as conditions shift.

It's clear that the market is still processing and adjusting to the fallout from the latest round of interest rate upticks. In a statement, National Association of Realtors chief economist Lawrence Yun said that the main market currently getting the least yearly gains in homeownership is the "young households."

Compared to a year earlier, the rate of sales in for homes valued at $250,000 or above actually gained 10 percent. And even with the interest rate activity, December reportedly saw a boost in sales for homes more expensive than $100,000 but less than $250,000, as well as an uptick in the Pending Home Sales Index. Of all the different regions mentioned in the statement, the western U.S. saw the biggest general improvement over December 2015, with sales numbers a full 5 percent higher.

Further variables on the horizon
NerdWallet said that other new changes in government could stand to impact mortgage rates, specifically. Changes in tax rates, for example, could drive interest rates higher, and a new leader for the Federal Reserve could also have a new effect on the market's direction. This last change, however, won't come before next year, when current the Chair, Janet Yellen, steps down.