Last week, we witnessed something that hasn’t been seen in a decade, but something we’d heard whispers about for months. We never thought we’d actually see it, but the Federal Reserve has raised interest rates.
What’s this mean for consumers? Well, if you're in the market for a home or a car, it's a good time to pay attention and start preparing to borrow differently, if at all. Tight lending standards and high interest rates will place an all-new importance, if not absolute consumer relience, on selling your house, especially, home cash sales.
What the Fed interest rate increase means for homeowners.
What is the Federal Reserve, anyway?
According to The Federal Reserve System’s website, the the Fed is the central bank of the United States. Congress created it in order to provide the nation with a more stable, flexible, and, all-in-all, safer, monetary and financial system. Among the responsibilities of the Fed, is influencing the nation’s money and credit conditions, and pursue a stable economy with full employment. The Fed also oversees and regulates banks to protect the credit rights of consumers.
What does the Federal Reserve do?
Basically, when the economy is doing well, which is how we are seeing things presently, that's actually the time you should be most concerned about inflation. Traditionally, the Fed fights inflation by raising the federal funds rate, which makes money more expensive. Inflation, as we learned in 2008, is what happens when the cost and availability of money affect how consumers will pay for goods and services. Pretty much, when money is cheap and plentiful, there's more demand. This leads to rising prices.
In short, the Fed wants to lower longer-term interest rates, support financial conditions, prevent inflation, and improve the economy. To do so, the Federal Reserve conducts monetary policy to achieve maximum employment and stable prices. Large-scale purchases of federal guaranteed or Treasury securities to lower longer-term interest rate, have been an effort to improve financial conditions and support economic recovery.
What is the Fed interest rate hike?
The Federal Reserve, otherwise known as “the Fed” announced an increase in a key interest rate by 0.25 percentage point, and there’s expectations of more to come in the near future.
Prior to the last Fed rate increase one year ago, according to Freddie Mac, rates on 30-year fixed-rate mortgages averaged 3.97%. Experts were bracing themselves to see this rate go even higher, but after just barely seeing under 4% at the end of 2015, rates began to decline. 2016 saw mortgage rates fall below 3.5% between July and October, 2016.
For a full understanding of how Federal Interest Rates Affect Property Values, check out this fantastic article by Investopedia.
Why does the Fed rate increase matter to me?
Broadly speaking, the rise in interest rates increases borrowing costs throughout the economy, and affects anything that has interest attached to it. While it may cost more for consumers to borrow money for homes, there are some positive effects that, though not immediate, will be part of the economic ripple effect.
Fed interest rates matter in that they majorly affect the operations of the U.S. economy. Interest rates influence borrowing costs. For example, when the Fed sets interest rates low, more people are encouraged to obtain a mortgage or take out an auto-loan. Businesses also feel the effects of such rates, and could be encouraged to expand, update, or hire more employees.
On the opposite end of the spectrum, higher interest rates result in just what you’d expect. When the Fed hikes the interest rate, consumers and businesses are restrained and are not able to borrow as much money. A limitation on how much credit banks may lend buyers, higher rates, and an increased buyer pool, could lead to lower home values since the overall price of buying a home goes up with mortgage rates.
Does this mean I can sell my house in 2017?
Even though the Fed controls short-term interest rates, its decisions partially impact long-term interest rates for mortgages, and the timing of this rate hike is at the same time as the interest increase on a 10-year U.S. Treasury bond. What’s important about this, is that mortgage rates are very closely tied to the 10-year note.
In the coming year, those who want to sell their house should proceed with caution when it comes to buyers who rely on financing. It is buyers such as these who depend on home loans, and are hardest hit by the rate hike. This could land you in some iffy situations with unqualified buyers, pending approvals from potentially damaging lines of credit, and requirements of impossibly large down payments. Don't set yourself up for disappointment, sell your home for cash.
You want to sell your home, and you want to sell it the easiest way possible. The simplicity of selling your home for cash is you don't have to worry about interest rates on mortgage lines or tight lending regulations.
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If you are trying to sell your house, you probably know the process can be stressful and not to mention, expensive. Realtors often charge a commission that equals as much as 6% of your home’s sale price. Combined with the other fees or sales tax, this can add up quickly to eat into your profit. The market is demanding more affordable homes, and the situation is set to benefit you. Take advantage of the here-and-now with MoneyBug. There isn’t any waiting around with us.
Get a real cash offer for your house just by typing in your address. There’s no paperwork to get started, and our online technology takes care of the hard part. If you are ready to take action, it all starts with the click of your mouse. Don’t worry about the Fed rate increase. You’ll be dealing with cash!