This month the federal government, via the Federal Reserve, increased its benchmark interest rate for the first time in nearly a decade. After years of historically low mortgage loan interest rates, what does this rate increase mean for future homebuyers? The good news is that this increase may not mean that you’ll see mortgage loan interest rates go up immediately – and certainly not at rates that correspond directly with the federal increase.
This interest rate hike was widely expected – both in terms of its timing and its amount. As with any market change, there will be some initial volatility as people react to the change and start to prepare for the future. However, because mortgage interest rates have been so low for so long, many people are likely to want to purchase quickly, in order to seal in the lower rates before they have a chance to rise.
John Wake from Real Estate Decoded explains that “the real estate economy is more sensitive to interest rates than most of the economy.” Because of this sensitivity, he explains, the expectations of higher interest rates can have a bigger impact on the real estate market than on other financial sectors.
Many financial experts see more of a tie between mortgage rates and the 10-year Treasury yield, rather than between mortgage rates and the Federal Reserve benchmark rate. Still, it is likely that some prospective homebuyers who were previously on the fence about purchasing may feel the push to go forward and close on a new home.
For the market, this could result in higher average home prices next year compared to last and demand increases, at least in the short term. For most people, their home will be the largest financial purchase they make, and so understandably, people want to shop around for the absolute lower interest rates and best terms that they can find.
No matter what happens to the average mortgage interest rate over the next year, you can take steps today to get yourself ready to qualify for the best mortgage rates available on the market. If you are not sure what your credit score is or what your credit report reflects, take advantage of your yearly right to request one free copy of your credit report. Review it to make sure that there are no errors on your report which could impact your ability to qualify for a mortgage. You can also work on building a down payment, unless you plan to utilize a low or no down payment options, like those available through FHA and VA loan options.