We’ve seen rates increase since Donald Trump won the election. Now, the Fed is saying they’ll do three rate hikes instead of the expected two in 2017. This caused rates to bump up about half a percent. What do interest rate increases mean in regards to a buyer’s payment and the overall market?
According to The Wall Street Journal, if we adjust for inflation since 2006, housing prices are actually 16 percent below their 2006 peaks in most areas. Many economists are saying the demand for housing remains as strong as ever and that recent rate increases will have a minimal effect.
However, people usually make home purchases based on payment. So as interest rates increase, somebody thinking of purchasing should know a 1/2 percent increase in rates for a $500,000 loan, increases the payment about $140-$150 (and even less after “tax benefits”).
Should buyers and borrowers wait to see if rates fall before moving forward with transactions? Jay Voorhees of JVM Lending says absolutely not. Borrowers can easily take advantage of no-cost refi’s if rates fall.
And, as Gary Shilling wrote in a Forbes column on Dec. 6, he thinks the markets massively overreacted to Trump’s election. He points out that the root causes of weak economic growth (that have kept rates low) will remain. He also says that Trump’s proposed tax cuts and stimulus programs will be watered down by Congress; the expectations of an economic boom are overblown.
What do you believe? Are you bullish or bearish? This election reinforced the notion that nobody has a crystal ball and sitting on the fence waiting for one outcome or another may be the worst thing you can do.