Seinfeld spent just about a whole episode discussing how late in the year it
is appropriate to wish someone "Happy New Year." I promise this will be my
only Happy New Year message. But I do have a similar economic question to
ponder as we enter the year. How long until we know what type of affect the
Federal Reserve Board raising rates will have on interest rates and the
economy?
Some of the effects are immediate. The prime rate was
just increased by banks for the first time in almost ten years. For those who
have home equity lines of credit on their homes or credit cards based upon their
bank's prime rate, rates will go up immediately. A small increase of .25% on a
$10,000 balance amounts to only a few dollars per month. If the Fed continues to
raise rates this year, these effects will be multiplied, obviously.
The affect upon real estate is quite different. Most home loans are fixed
rates and thus based upon long-term interest rates which don't necessarily
increase at the same pace as the short-term rates the Fed are raising. According
to Freddie Mac’s chief economist, Sean Becketti, interest rates should remain at
“historically low levels” throughout 2016, in spite of whatever moves the
Federal Reserve is expected to make. While any increase in rates on home loans
is certainly not good news, we have to remember that rates are still at
"historically low levels" as Becketti says, and the fact that the Fed is taking
action means they have confidence in the economy. If the economy continues to
expand, real estate will continue to thrive as will the economy, despite the
Fed's moves.
Mike Ervin
Branch Manager/Mortgage Banker
NMLS: 282715
O: 650.451-7797
C: 650.766.8500
mike@mikeervin.com
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