As many industry watchers predicted, the Federal Reserve account new interest rate hike for a third time in 2022 with a boost of 0.75 percent on June 15. The last time the Fed increased its benchmark interest rate by such an amount was 1994.
The interest rate changes are an attempt to combat the serious inflation affecting the United States. However, even if the economy responds positively to the change, the increase will create losers and winners in areas like real estate and the financial markets.
According to an article published by NPR, the interest rate increase will create stormy conditions for people who want to buy a home. The interest rates for mortgages aren’t specifically tied to the Fed’s rate, but banks do base their rates on where the Fed rate sits.
At the beginning of 2022, rates remained low at around 3.25 percent. Successive interest rate hikes pushed the average rate to greater than six percent. For prospective homeowners, that increase pushes a $500,000 mortgage from a $2,200 payment to a $3,000 payment. That sort of increase is untenable for most buyers.
A home equity line of credit is one of the most useful tools available to a homeowner. Unfortunately, homeowners may see their rates increase on existing balances. HELOCs always have a variable rate, so homeowners will see their payments increase alongside the Fed’s activity.
However, homeowners who used their HELOC funds to pay off credit cards should still benefit from a six percent rate. Most credit card interest rates are much higher than six percent, so paying off a HELOC is less expensive than a credit card. Mortgage interest rates haven’t been the same as credit cards since the 1980s.
Yes, the buying environment may create difficulties for those seeking to buy a home, but the news isn’t all bad for future homeowners.
The silver lining for home buyers is that sellers may put the brakes on price increases. As everyone in Southern California real estate knows, the meteoric rise of home prices in the Southland has broken records year after year.
The interest rate hikes will likely slow the upward trajectory of prices. The Orange County Register reported in mid-June that prices were already leveling off before the Fed made its move.
Savings accounts aren’t a particularly volatile or exciting part of the economy. However, rate increases from the Fed equal rate increases for interest-bearing savings accounts.
Future homeowners who have thousands stored in a bank account for a down payment could benefit nicely with the rate increase. People interested in maximizing their savings should shop around for the best rate for their growing down payment.
Home seekers interested in navigating the volatile real estate market will also benefit from the experience of the Los Angeles agents at Century 21 Peak.