It's been nine years since the Federal Reserve has raised interest rates. This is prompting several different outcomes; buyers are urged to move more quickly before rates rise again and yet higher rates may prevent potential homebuyers to hold off on buying a house because their finances are too close to their maximum housing allowance.
Rates went up this last Wednesday by .25%. This is the first rate hike in nearly a decade or since June 2006. This is when the economy was doing very well and the housing market was on the verge of a bust. Unemployment was at 4.4% and because of this looming housing bubble, Federal Reserve's decided to raise rates. A rate increase is actually a good sign of the economy because banks fill their confident about the strength of the housing market and the economy to handle these higher borrowing costs. At the end of our housing recession in 2009, unemployment was at 10% and now it's back at around 5%.
In 2008, the Federal Reserve put the interest rates near 0% to boost the economy but since then, rates have not increased by much. However, the Federal Reserve has decided to increase these rates slowly and expected to raise at a gradual pace over the next couple of years. What this means is that those that have put money away will continue to make a little bit of money, because on the flip side, investors haven't earned very much interest since 2008.
For homebuyers, now is the time to take action. Mortgage rates are not going to go up overnight but they will continue to climb. A typical rate on a 30 year mortgage is currently about 3.9%. In 2006 mortgage rates were above 6% so even taking advantage now of the low interest rates will benefit homebuyers more now than it would then. Even though a small percentage can affect the affordability for countless consumers, the rate hike is generally good signs of a healthy housing market.
Higher rates can also make the dollar stronger which is a nice advantage for travelers. However this can make a less attractive and more expensive option for foreign shoppers. Not to hurt the US trade, the federal government will take a few months to increase these rates to keep things balanced.
The biggest takeaways to understand is that if you're planning on buying a house, now would be the best time because there is plenty of inventory on the market, rates are still historically low, and you should gain instant equity over the next couple of years should you buy the right type of house. Waiting too long, means there will be less properties on the market and interest rates will continue to rise however, because the Federal Reserve is doing this slowly, most homebuyers are still in the clear for a couple of years.
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