Feds raise rates today – how will that affect you?

Today the Feds announced just the second rate increase since 2008. The justification for the rate increase was that the economy continues to get stronger and move closer to the 2% inflation rate that the Federal Reserve considers a solid rate of inflation for a healthy economy.

Fed speak indicated that it is anticipated there will be 3 more rate increases in 2017. 

Federal funds rates do not directly affect mortgage rates but…

Federal funds rates are the rates that banks charge each other for short term loans they need to keep their reserves at a set level to ostensibly prevent another bank melt down.

The federal funds rate can directly affect the cost of housing, rates paid on credit cards, auto and other installment loans and student loan rates.

Mortgage rates are not directly tied to federal funds rates, but banks do find ways to pass on current and anticipated future costs to consumers. With the forecast that bank short term borrowing rates are likely to increase at least three times in the next year, banks are already looking at the losses they will be incurring on the hundreds of millions of 30 year fixed rate loans with rates at and below 4% that have been funded over the last 8 years; as well as losses they will sustain on new mortgages funded now before more rate increases kick in during the coming years. 

However, to put all this in perspective, the banks have been paying basically zero per cent over the last 8 years, while the lowest mortgage rates funded during that same time period was 3.5%. Not to mention that banks have been charging fifteen to twenty percent on credit card debt. This is why most banks are not hurting at all, and in fact have been more profitable than ever over the last several years since the recession ended. 

As regard mortgages, as of today, the average rate for a 30 year fixed rate loan has risen to 4.3%, up from 3.5% available from many lenders to the most qualified buyers just a few weeks ago. 

Still on the fence about buying a house? The forecast is that rates will continue to rise which will reduce buying power for most applicants. It is possible mortgage rates could rise as much as one per cent in 2017. If you’re currently home shopping, be sure to keep in touch with your lender AND keep your pre-approval up to date so you’re aware of how much you can afford at all times. 

Please like & share:

Seattle – Portland fastest rising home prices nationwide

sold - sale pending signsAccording to the S&P CoreLogic Case-Schiller home price index, Seattle and Portland are leading the country with the fastest rising home prices in the twenty major metropolitan areas they follow. Seattle has had year over year price increases of 11% annually through September 2016, while Portland follows right on Seattle’s heels at 10.9%. Remember, these are average prices and some neighborhoods within these metro areas have seen prices rise much more dramatically year over year. 

According to Professor Gerard Mildner at Portland State University’s Center for Real Estate, the issue is that developers are just not building enough housing to meet the demand. He added that here in the Portland metro area, “We’re building about 20 percent fewer housing units in the last three years as compared to the years between 1990 to 2007.” At the same time, our rate of growth as been explosive with as many as 150 new residents moving into Portland every single day! That number varies from report to report, but numbers I’ve seen range from as low as 112 daily to as high as 165 people migrating into Portland daily. 

Housing inventory has sat at or below 2 months (the time it would take to sell all listed homes based on current demand if there were no new listings) for the last few years, and demand is on the rise with recent rate increases. 

How much has demand risen?

Lockbox activity 12-4-2016

Just to give you some perspective on demand, check out the chart issued by RMLS that shows the amazing increase in number of home viewings the week ending December 4, 2016!

Since the election, rates have been rising at the fastest pace we’ve seen in years, so buyers are jumping off the fence and getting to work finding that new house. On average rates are up at least 1/2% in the couple weeks! 

 

 

 

Is Portland experiencing a housing bubble?

The general consensus is NO. 

First of all, the population and business influx that we are seeing in this decade did not exist prior to the housing collapse on 2007-2008. Sure we saw people moving to Portland from all over the country, but the jobs increases due to the movement of big industry creating satellite offices here is a relatively new phenomenon. 

We have not seen the wage increases that would support price increases continuing at the rate we’ve seen over the last 3-5 years (up 32.5% in the last 5 years), but the lending guidelines (assuming that they are not over-turned with the new administration) are so much more stringent that current home owners and buyers are not nearly as likely to default as they were during the recession. High risk banking and lending practices and loan products have all but disappeared. 

Home ownership remains an American dream

Most  people interviewed want to be home owners. There is stability in knowing what your housing payment will be from year to year (versus rapidly rising rents); and where else can you see as great a return on your investment as current home owners are seeing?

As mentioned above, until supply catches up to demand, housing prices in Portland will continue to rise. At least that is the forecast until at least 2020. To be sure, the rate of inflation in housing values will slow as supply catches up to demand. There could even be a 10% price reduction in the next 10 years, but if your home value has increased by 30% and more, that’s not devastating, especially if you know your housing payment will not increase. 

Please read more in the article published by Ettro Capital in November 2016.

 

 

 

Please like & share: