Interest rates begin to rise… What it all means for the real estate recovery!
Yesterday afternoon at 4:30pm – just after the close of the US Equity markets – the US Federal Reserve (FED) announced a 0.25% interest rate hike in its Discount Rate, now set at 0.75% from the previous mark 0f 0.50%. Although the FED had signaled higher rates for 2010 – expectations were that higher rates would arrive the second half of 2010, possibly the last quarter - yesterdays announcement came as a complete surprise and rattle the financial markets overnight.
What it all means for Buyers and Sellers of real estate?
For existing owners, mortgage interest rates will likely move higher in the coming days, particularly for those who have Adjustable Rate Mortgages (ARM’s) and Home Equily Lines of Credit (HELOC’s). And while the impact on your cash-flow might not be significant in the short term, it is a reminder that you might want to re-think your current financing – if you have haven’t yet – and possibly consider switching from a floating rate mortgage to a fix rate mortgage.
For Buyers looking to finance a new purchase but are undecided holding back for an additional drop in property prices, should first look into the connection between interest rates and prices. For example, if prices come down another 10% but interest rates increase by 1 percentage point, that would mean the same monthly payment today versus waiting. Read the following WSJ article.
Keep in mind that yesterdays announcement is likely not to be a one time event. It potentially signals the beginning of an uptrend in higher interest rates, and according to many economist the trend could last well into 2012.
For more information or if you have any questions or comments, please send me an e-mail to: michael@miamiflorida.com or call me at my mobile 305.450.0036
