With all the talk of interest rates and federal interest rate hikes in the news, it makes sense to talk about it and how it impacts our daily lives. Being in the real estate business means these rate changes are something I monitor all the time – even when it’s not making the news. However, it does have a much farther-reaching impact on almost everyone.
First, let’s address what it’s not. The Federal Interest Rate is not the rate consumers pay, though it does indirectly affect consumer rates. The U.S. Central Bank sets the Federal Interest Rate which is the rate at which bank-to-bank transactions are made. Every other interest rate in the country reacts in response to federal rate changes. Mortgage rates, credit card interest rates, student loan rates will all rise in tandem with the Federal Interest Rate.
There have already been several rate hikes this year. This is a faster pace, and overall, a larger rate increase than we typically see. The Fed’s goal is to put skyrocketing inflation into a cool-down mode (whether it accomplishes that goal is another story). As a rule, when spending is down, interest rates come down to encourage people to spend more money and make larger purchases. When that pattern starts to reverse, we see an increase in prices for goods and services. As interest rates go up, we tend to see a reduction in prices to offset the higher rate of interest.
This is a good news/bad news situation. If you’re currently in the market to buy real estate, you can expect your interest rate to be higher than it would have been 6 months ago. However, we are seeing some decreases to purchase prices as a result. Ultimately, you should still be looking at your total monthly obligation in order to determine what your price range should be.
As a seller you may start to see the market prices in your area decreasing. Don’t panic — while buyers are looking at their total monthly obligation (interest + principal) to determine how much home they are able to purchase, demand for homes is not likely to be too dramatically changed as long as employment numbers stay up. This is a good time to evaluate your motives for selling.
There are a lot of moving parts to this. It’s much easier to understand the effect on you and your property when we can sit down with your family’s information (home, needs, budget, et cetera). At The Drew Kern Team, we are experts in the Miami real estate market. Let me know when you’re ready to talk specifics.