By Will Heaton
Rates, Increases, and Other Factors
On December 14, 2016 the Federal Reserve increased interest rates by .25% for the first time in a year. This change is the same low rate increase as 2015. With this increase, the housing market was ripe for buyers and sellers to compete over a healthy market of options in 2016 and looking forward to 2017.
Long-term national mortgage rates increased in December, reaching its highest level since January 2014. National mortgage lender Freddie Mac reported the rate on 30-year fixed-rate loans is the highest since April 2014. Rates on adjustable five-year mortgages are the highest since mid 2011.
As the bank short-term interest rate increases, the cost of a loan will also increase incrementally. ]PMorgan, Chase, Bank of America, Wells Fargo, and U.S. Bancorp raised their lending rate in response to the Fed’s decision.
Other outlets likely to feel the effects of this decision include credit card rates and adjustable mortgage rates. While fixed rates including homeowners with fixed-rate mortgages and those with federal student loans remain the same.
Presidential policy decisions have an effect on the residential real estate market, through infrastructure spending, regulatory and tax reform, national minimum wage changes, and immigration policies. The US’s economy has steadily grown since 2008, leading to the Fed’s increase based on their belief that it will continue positively.
The Federal Reserve interest rate increases affect mortgages, investments held in banks, automotive loans, stocks and bonds. It’s important to remember when the Federal Reserve adjusts interest rates, the average American feels the effect. No matter which direction it’s moving in, it’s important to know how an interest rate adjustment will affect your personal finances.
Projections are good for moderate growth in 2017, but there are a number of factors that could affect rates. The future market will depend on the new administration under President-elect Donald Trump. Investors have bid rates higher because they believe the President-elect’s plans for tax cuts and higher infrastructure spending will drive up economic growth and inflation.
Since hard money lenders source their funds from private investors, a change in the federal interest rate does not have a direct effect on hard money borrowers. However, effects of the rate change may cause competition amongst hard money lenders, and in turn affect your borrowing rate. The real estate market is affected due to buyers and sellers, as well as inventory. Working with a broker to decide which investment is best for your situation will help you avoid the side effects of increased rates that sellers are may be facing.
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About the author …
Will Heaton is a co-founder and managing partner at Intrust Funding. As the fund manager, he is responsible for investor relations, underwriting, and new business development. Will has over 10 years of experience in multifamily and residential real estate. He is an enthusiastic member of the community and enjoys participating in various non-profit groups throughout King County. In his free time, Will enjoys adventures with his wife and their two children, classic cars, and fishing.
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