How Rate Hike Hurts Buyers

Yesterday, the federal reserve released some less than pleasant news for potential home buyers. Not only did they raise interest rates, they also said rates will steadily climb throughout the year. Despite the volatility with the rates in the past year, it looks like we will be watching them rise whether we like it or not. 

Monthly mortgage payments will also rise, and potentially tightening the housing supply. 

They announced rates will rise .25% and they also have two more installments of rate jumps during the year. 

Unbeknownst to some there is a difference between mortgage rates and short-term interest rates. The Fed determines the short-term interest rates which keeps mortgage rates at a similar number. Ultimately the Fed influences mortgage rates. 

It's most likely going to become harder to buy a house because it'll be more expensive month-to-month, and those who currently have a house probably won't be looking to move since their rates are locked in. The homeowners who were considering moving, could very well stay right where they are.

Last summer the rate on a 30-year-fixed mortgage was 3.44% and just last week they were 4.39% which is another historic low. This increase of .25% will force buyers to spend another 3% each month on their loans, assuming they have an average $250,000 house. 

Small increases aren't going to push many people out of the buying Poole, but when it keeps rising it will eventually push many people out. 

On the building side of things, materials are expensive as-is and continue to climb up in price, so raising rates could very well push a number of a builders out of the market.

In the past few years rents and housing costs have been rising faster than ever while the rest of the economy stays somewhat level. This is surely not helping the shortage of homes available.

Now is not the time to panic. Buyers can request adjustable rate mortgage is which are typically not as expensive as fixed in the beginning. But adjustable rates are a dangerous option, and aren't really a good idea at all.

Despite having the increase, rates are actually still low; just not as low as we are used to. 

It's not all that bad because this is a sign the economy is doing well and wages have risen. It's pretty much just a way to make sure the economy does not grow too fast and outgrow itself.

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