Two weeks ago, the federal reserve board voted to raise the fed funds interest rate .75% and there’s talks of another hike at the end of July to slow down inflation. One of the strategies the federal reserve can use to tame inflation is to increase interest rates to drive down consumer demand for big purchases (such as homes). This directly impacts our professions – both agents and loan officers.
What does it mean for you and your clients?
In the short term, you will need to make sure you are using our weekly newsletter or speaking with a Key Mortgage loan officer to properly complete the max. Interest rate section of the sales contract. Make sure as a listing agent you are looking at this and not allowing this to be a legal out for the buyer. Carefully review pre-approvals from outside lenders as your buyer’s eligibility may have been impacted as rates have risen almost 3% in the past 6 months. In the meantime, we are reviewing all of our current preapprovals to ensure your buyers are armed with the right qualifications.
Still encourage your clients it’s still a great time to buy – If rates continue to rise, it could cost your buyers hundreds of dollars extra per month. Even if your client’s think home prices will fall, a rising interest rate may negate that. Also, rents are rising at a higher percentage than mortgage payments – so don’t assume renting is going to be less expensive.
In terms of longer term impact, higher interest rates on mortgages will deter clients from purchasing homes with the same historic (an at times irrational) vigor we’ve seen over the last couple of years. It will also deter investors which will open more opportunities for those looking for a homestead.
Home prices are predicted to stay somewhat consistent, with an emphasis on local pricing – don’t get caught in the national averages Historically, higher rates slowed home appreciation but still remained positive. However, there was never a housing supply shortage during a sharp rate increase. This combination points more to increasing home values and advising clients to continue to buy.
For more information on how to approach your aging preapprovals or strategies on helping your clients qualify in this market, reach out to a Key Mortgage loan officer today. We will ensure your client is qualified and in the right position to buy; and to ensure your sellers that their buyer can still afford the property with a second look.