On December 16, 2015, the Federal Reserve Open Market Committee (FOMC) increased the Fed Funds rate from a nine year resting point of .25% to .50%. What does this mean for the San Francisco real estate market and who is affected?
In a nutshell, my view is that this is another signal that the market is slowly shifting to a more balanced state of equilibrium, but that the short-term effect on San Francisco real estate will be minimal, if noticeable at all. Rates are so low right now and will go up incrementally. However, if the Fed signals that they plan to continue the increases this year, leading to the expected 2% target rate increase, then that will affect home buyer affordability.
Who Will Be Affected the Most?
Since long-term rates are not set by the Fed, homeowners are the least likely to be affected by the increase in interest rates. Existing adjustable-rate mortgages and borrowers of home equity will feel the pinch, but just a tiny one for now.
First-time home buyers will likely be affected the most by the increase in interest rates. According to Inman News, “Young people have a very hard time accumulating a down payment…income instability is more troublesome to the youth set than income altitude.”
When first-time home buyers are already struggling with things like down payment, even a small hike in interest rates can be a deterrent. The psychological impact of a “rate increase becoming more powerful than the rate increase itself,” says Keller Williams broker Jay Lieberman from Thousand Oaks, California.
The Best Course of Action
I said it last week and I will say it again: Get off that fence. If you are in the market to buy a home, buy now, and benefit over the long-term with that low home loan interest rate. Don’t wait for the “spring frenzy” coupled with the possibility of another interest increase.
If you are have been contemplating selling your home, it’s time to make the move. Our booming sellers market is graying, as they say. I have plenty of tips and information about how to position your home to sell for the highest return on investment over the winter months. To find out more, read last week’s post about the winter San Francisco real estate market.
Have questions about the interest rate hike’s effect on San Francisco buyers and sellers? Want to buy or sell a home but not sure if now is the best time?
Reach out to my SFhotlist Team and Keller Williams San Francisco.