How the Recent Hike in the Fed’s Interest Rate Will Impact Home Buyers in Southern California

For the second time in the past three months, the Federal Reserve (the Fed) has raised a key interest rate. This increase is likely to affect many who live in the area who have credit cards, adjustable-rate mortgages, and home equity lines of credit.

Short-Term Interest Rates Go Up Again!

This latest change in the Fed’s short-term interest rate (it’s benchmark rate) is to raise it

0.25 percent from 0.75 to a full 1.0 percent. While this rate is still historically low, the move to increase the rate was not entirely unexpected. However, the Fed is still expected to raise the rate at least two more times this year. The Fed says the interest rate hikes are due to increases in consumer confidence, steady job growth, and a more stable housing market.

Naturally, as soon as the Fed announced the rate hike, a number of major banks announced their intention to raise their prime lending rates from 3.75 percent by the same amount to 4.0 percent. One local San Gabriel Valley realtor said that those who have an adjustable-rate mortgage that is due to reset soon are unlikely to be affected by the current rate change. However, those whose rates are set to change soon will find they have to dig a little deeper into their wallets as their payments will be going up.

By the numbers, it might look something like this: If you have a $500,000 mortgage, the current change will end up costing you another $1250 per year. If you have a home equity line of credit worth $100,000, you can expect to pay an extra $250 per year. When you look at these numbers, now might be a very good time to consider getting out of your adjustable-rate mortgage and settling into a fixed-rate mortgage with a decent interest rate.

Now is the Time

If you are in a position to make the jump from your current adjustable-rate mortgage to a fixed-rate one, you should definitely consider doing so as the Fed is expected to continue increasing interest rates throughout the year. This move will, of course, be reflected in interest rates charged by major banks and lenders.

With Southern California’s housing market already suffering from a lack of supply to meet the current demand, this move by the Fed is expected to further impact the housing market. John Husing, an Inland Empire economist had this to say about the local real estate market, ” I spoke at three conferences last month and all of the Realtors were wildly excited about 2017. But when you ask them what they’re going to sell they just look at you and say, ‘Something will happen.’ We have strong product demand but no product.”

A number of prominent economists believe the Fed will hold off raising the interest rate until June. This will give them enough time to determine whether or not Congress will pass the President’s massive tax cut plans and approve his plans to increase spending on infrastructure, as well as his deregulation programs.