The Federal Reserve for just the second time since the 2008 economic crash has raised its benchmark interest rate, indicating that the consumer interest rate will also be going up. Although there is no indication just how much it will go up, it is believe the consumer will see between a 6-8% increase in their mortgage payment from before the increase. This indicates increased faith in the US economy, not just in the real estate market but also in growth and unemployment.
What does this specifically mean for the housing market? Looking at it big picture, many in the industry, including myself, see this as a necessary step to avoiding another market crash.
What will this do to home prices? Home prices in the last 4 to 5 years in the Seattle market have now doubled. We have seen such steep increase in prices that many were concerned about another crash. The likelihood of that actually happening was slim, due to the high amount of cash purchases (averaging about 35% of the purchases the last few years) and tightening of loan requirements, the raising of the interest rates is another step to prevent a crash. It will slow housing prices down a little bit (although we are still expecting at least an 8% increase in prices in the Seattle market next year) which will ward off those just trying to get in and hope to refinance with some equity in the following year.
What will this do to your mortgage payment? Experts believe you will see about a 7% increase in your mortgage payment from before the increase in rates to after. So for a mortgage payment of $2000 per month you will now be at $2140 per month.
Will there be more rate increases coming? We are expecting the answer to that to be yes. By the end of 2017 you should expect an interest rate on your loan to be closer to 4.5%, almost 1% higher than where we are at right now.