For years now, buyers across the nation have enjoyed some of the lowest mortgage rates we’ve seen in our lifetimes – one of the few “positive” results of the housing collapse – but the days of sub 4% rates may soon be gone. Consumers will likely see mortgage rates hike in the near future following a decision by the Federal Reserve to raise federal fund rates later this year – the first bump in rates in almost 10 years. As a result, many buyers across the state and nation are beginning to scramble to get into new homes before these higher rates hit.
Mortgage and other long-term rates already have begun rising in anticipation of a Fed rate increase, which could come as early as this week but is more likely later this year.
“When the Fed raises short-term interest rates, they’re raising the cost of money, and that impacts the cost of money to consumers, businesses and governments alike,” said Greg McBride, chief financial analyst at Bankrate.com.
“Long-term rates are effectively a series of short-term interest rates,” McBride said. “If the trajectory of interest rates is expected to change in years to come, long-term interest rates are going to reflect that.”
Other factors also affect rates for mortgages, bonds, certificates of deposit and other financial products. But the federal funds rate is a key factor because it normally reflects broader economic trends.
As the Great Recession began, the Fed lowered rates aggressively. The near-zero rate in place for nearly 6-1/2 years has hurt savers and those on fixed incomes. Interest on five-year CDs, for example, have been below 1% since 2012.
A Fed rate increase will be welcome news for savers, though it probably will trigger a volatile period as investors, fund managers and others in the financial industry adjust after years of near-zero rates, he said.
“If I were a retiree and I were sitting on a lump sum of cash, when the interest rates start going up, that is the time to start putting at least a portion of it into some form of a fixed investment,” John said.
Fed Chairwoman Janet L. Yellen said last month that she anticipated the central bank would move slowly on future interest rate boosts once it enacts the first small one — expected to be a 0.25 percentage point increase. That means it will be “several years,” she said, before the rate gets back to a more normal 3.5% to 4% level.
Still, rising rates signal an end to the easy-money policy that pushed 30-year mortgage rates to a record low of 3.31% in 2012
Real estate agent Anselm Clinard, who focuses on the hot northeast Los Angeles market, said he’s never been busier, in large part because of the expected rate increase.
“It’s created some urgency in the marketplace,” he said. “Everyone wants to get in while the getting is good.”
Do you think the imminent increase in rates will drive more buyers to the market now? Do you think the days of sub 4% are gone? What are your thoughts?
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