How Will the Fed Interest Rate Hike Effect Arvada Housing?

How Will the Fed Interest Rate Hike Effect Arvada Housing?

The Federal Reserve hiked interest rates for the first time in 10 years.  This is a significant indicator for the future of the real estate sector and home interest rates.  In the immediate future housing interest rates will remain fairly unaffected because 30-year mortgages are priced off 10-year Treasury note yields, which do rise as short-term rates climb, but not as steeply.  In the long term, this could be the start of a slow up-tick  in real estate interest rates.  Higher interest rates equal higher payments for the same value of home. As an example, a $200,000 house at a 4% interest rate/30 years would have a principle and interest payment of $954/month.  A $200,000 house with a 6% interest rate/30 years would have a principle and interest payment of $1,200/month.  We have been extremely lucky to have interest rates so low for so long.  A 7% interest rate was considered the market average prior to the housing bust of the mid 2000's.  Interest rates have crept up to as high as 18% in the 1980's. (See chart below)

Excerpt from USA Today article by Paul Davidson: 

"Doug Duncan, chief economist of Fannie Mae, the giant government-sponsored funder of mortgages, expects this week's Fed hike of a quarter of a percentage point to have virtually no immediate impact on Treasury or mortgage rates, noting markets already have priced in the move. Assuming the Fed raises its rate by a percentage point over the next year, Duncan expects 30-year mortgage rates to drift from 3.9% to 4.1% during the period. That would boost the monthly cost of a typical $225,000 mortgage by $26 to $1,454 — not enough to deter most buyers.

Adjustable-rate mortgages, many of which are modified annually, could increase about twice as rapidly, by about a half a percentage point. Yet as long as job growth and aggregate U.S. incomes increase proportionally, Duncan expects any market impact to be modest."

What does this mean to you as a home buyer/seller in Arvada?  If you are planning on making a move in the next few years, the soon the better. Although, there is no need to panic and have a fire sale. Interests rates climb slowly but I think we have seen the bottom of the interest rate market.  From here they will rise and the cost to buy a home in the future will be higher.  If you have any questions about selling your home, buying a home or real estate loans please don't hesitate to contact me at adam@westwoodsrealty.com or call/text me on my cell 303-913-2326.  

Thank you,

Adam Browning
Broker/Owner
West Woods Realty