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Homeownership and the Rising Interest Rates

Written by Thomas Group Realtor®, Dick Mahaffey, Retired President of Sun Trust Bank – Gainesville

The Federal Reserve just initiated the first interest rate hike in nearly 10 years, following the Great Recession. The rate established this week is a very modest ¼%, raising the rate that banks charge between each other from an effective 0% up to the present 0.25%. This rate becomes a benchmark for the setting of rates charged by banks for what you pay for credit cards, automobile loans and mortgages.

As this rate is reevaluated and raised over time, the rates that you are quoted for a new mortgage loan will change accordingly. The Federal Reserve meets approximately every other month in evaluating the economy and taking whatever action they deem necessary to keep the economy functioning in the best interest of our general population.

During the time period that the Great Recession began, around 2008, as our population was losing jobs and the ability to pay bills, housing experienced a significant downturn, with foreclosures at an unprecedented high. Banks were criticized for their lending standards, and in an effort to reduce foreclosures and delinquencies, the regulators tightened up the criteria needed for loan approvals. Conservative lending kept down new loans and the building of new housing developments.

Because of the demand for housing during the recession, as houses came on the market this past year, buyers quickly jumped to the opportunity, lowering the average supply of houses on the market and lowering the average days of inventory on hand to lows not seen in a number of years.

The cost of mortgage lending has remained low for buyers for some time now. The recent 0.25% increase in interest rates will move the pricing needle slightly, but not enough to discourage buyers. For those of us that have been around the end of the 20th Century, the standard for lending rates on a 30-year mortgage was around 8.0%. In the late 1980’s and early 1990’s, the mortgage rates settled in between 12 – 16% and it seemed unlikely that single digit mortgage rates would ever resurface for our borrowing pleasure! My, have times changed!

The current typical rates around 4.0% or slightly higher compare very favorably to past history. Estimates of aggregate increases over the next year are expected in the 1.0% to 1.5% range. While these numbers are meaningful, they should not create expensive mortgages that will shut down the mortgage lending business.

Given the fact that interest rates will rise over the next year and inventory for sale is still expected to remain limited, it is advisable for anyone considering buying a home, to have the amenities of a dream home outlined and to move aggressively when they locate a prospective property for sale in the market. Working with a professional Realtor now and knowing your search criteria can help you stay organized and in the know about the local market, allowing you to move quickly when your dream home comes on the market.

Dick Mahaffey, Realtor® with Thomas Group Realty, LLC, retired in 2009 as the market president and head of Private Wealth Management for the Gainesville market of SunTrust Bank.

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