Q: The fed recently announced it won’t be as aggressive raising interest rates next year. What are your thoughts on this development and how it relates to the Bay Area real estate market?
A: That is good news for our Bay Area real estate market. Raising mortgage interest rates erode home buyers purchasing power and decrease buyer demand.
At the Fed’s policy meeting this week they were debating on how to signal less certainty over the path of interest
rates without implying they are done raising them. Since the central bank began raising rates three years ago, it has indicated the potential for further gradual increases.
This week they talked about modifying their policy statement from “further gradual increases” in rates to “data
dependent” to reflect that their policy path looks less certain than it did three months ago. However, on Wednesday during their policy meeting they did elect to raise interest rates.
They have been raising rates to try and keep inflation rate at its 2 percent annual target while maximizing employment.
But it is a fine line for the Fed’s. Higher rates can slow economic growth. If they miscalculate and raise rates too high or too fast, history suggests they risk triggering a recession.
Jeff LaMont, Coldwell Banker, 650-740-8808, firstname.lastname@example.org.
A: Market sentiment will probably go back and forth as to the “appropriate” pace for Fed action is debated and therefore fixed mortgage rates will probably swing with that sentiment.
Predicting mortgage rates is difficult, let alone how that will impact the Bay Area real estate market. Despite public sentiment, the good news for home buyers and sellers is that there has been a sudden reversal rate directions and today’s rates are slightly more attractive than in last several months. Those sensitive to monthly mortgage payments should be motivated by the recent retraction in interest rates.
Ultimately, the first quarter real estate market will likely see an uptick in movement as educated buyers take advantage of rates before they may move north again. As we settle into the year, however, we will likely continue to see a normalization of real estate prices similar to what we’ve seen this fall.
Ashley Henderson, Compass, 415-841-2118, email@example.com.
A: Keeping rates low has always had a positive effect on the housing market. For every full percentage point rate decrease, a buyer’s loan amount could be increased by as much as nine to 11 percent.
In other words, with a one percent decrease in rates on a $1 million mortgage loan, you could qualify for an additional $90,000 to $110,000 loan amount for the same monthly payment.
The opposite is true when rates increase. A buyer’s purchasing power can be affected by as little as a one-quarter percent increase, denying many potential buyers the opportunity to obtain the American Dream of homeownership.
With recent unsteady national and global market concerns, the American people deserve to have members of the Federal Reserve Board carefully consider all economic factors before making any major, or even minor, changes regarding interest rates. The effects can be devastating, not only on the housing market, but on the very financial stability of our country. With exceptionally high prices in the Bay Area, every little bit helps buyers by increasing their home purchasing power with lower rates.
Jill Gumina, Alain Pinel Realtors, 415-265-1717, firstname.lastname@example.org.