Federal Reserve chair recently hinted that rates may rise sometime this year. What might that mean to the Santa Clarita real estate market?
With exception of a minor hiccup in hiring last month due to unseasonably cold weather in other parts of the country, our national economic condition has seen much improvement since the dark days of the so-called “Great Recession” that reared its ugly head in 2008.
“But what does this have to do with mortgage interest rates?”, you may ask.
Interestingly enough, it all ties in together. Banks and mortgage lenders borrow money from the Federal Reserve who sets a “wholesale” base borrowing rate for lending institutions. From there, consumers are charged a “retail” rate that is usually a few points above (Based on credit rating, etc.).
The Fed has kept interest rates low while the nation continues to rebound from the effects of our recent recession. However, Federal Reserve Chair Janet Yellen has recently hinted that they may raise interest rates. Why would they do this when things are going so well?
The Economic Balancing Act
It all boils down to that dirty old word known as “inflation.” Continued positive economic growth can also lead to a rise in the cost of goods and services, which poses their own problems by putting a dent in how much money we have to spend on these items. When we are spending more on goods and services, we have less money to spend on long term investments such as real estate. the general rule of thumb from a big picture economic strategy is to raise interest rates to curb these price hikes. Yes, it’s a bit of a “Catch 22,” in that should interest rates rise, it can impact a home buyer’s purchasing power. That being said, inflation has a more immediate and profound impact on our ability to spend our hard earned money, so from the Fed’s perspective, raising rates slightly is considered the lesser of two evils.
What can be done?
The best thing you can do if you’re on the fence about buying is to consider your purchasing options and lock in your rate now. Our team of licensed, highly trained and knowledgeable agents can answer all of your questions in an effort to help you maximize your purchasing power and realize all of your real estate goals. Contact us today for a no obligation consultation.