We’ve been warning all year that rates are set to rise. The fed has signaled that it was ready to raise rates at their December meeting after the election. The markets didn’t wait, and rising interest rates affecting borrowers has risen faster than people expected. Since the election rates have risen about .6%.
It’s complicated, so let’s just say the Fed sets short term rates and rates banks use to borrow from each other. The mortgage market works off the 10 Year treasury note, and that is market driven. The price for 10 year treasury notes has fallen, meaning the yield is going up.
Rising Interest Rates Affecting Borrowers
What does rising rates mean for the SW Florida real estate market? We’ve mentioned ad nauseam that a 1% rise in rates robs a buyer of 11% purchasing power. Since the election rising rates have made the average home price about $16,400 more expensive. Unfortunately for sellers this won’t be going in their pocket. If the market would have beared $16,400 more for each home it would have already done so. Rising rates just stole $16,400 from the seller.
The question now becomes, can the buyer afford that? If they can’t, it will cut demand. If the buyer was maxed out before, they will have to pay $16,400 less today for the same home they could have paid more for a few weeks ago. The only thing that changed was interest rates.
Rising rates may spur the market to move. It should. Buyers who were on the fence should buy now! We’ve been warning them and this day has finally come. It costs buyers to wait.
We may see more sellers enter the market as well. Sellers are getting hit at both ends. Not only are buyers losing purchasing power to buy their home, the seller is also losing purchasing power on the next home they buy if they’re getting a mortgage. Waiting has cost sellers, and when they realize this day is finally here more will act. As more homes enter the market, there will be more competition amongst sellers for buyers. It becomes a triple whammy for sellers.
What can sellers do? I wouldn’t wait for all the other sellers to figure this out. I’d get my home on the market now before rates go higher and before listing inventory increases. Inventory has already been increasing this past year, and it could increase. Getting ahead of this is always better.
Hire the Top Marketer in Your Area
Secondly, I’d hire the best agent I could who advertises a lot. Some agents have gotten by without a lot of advertising, but that all changes in a rising interest rate environment and increasing inventory. With rising interest rates affecting borrowers like it is today, time is of the essence. You need an aggressive agent who’s been through a changing market before. Some of the newer agents haven’t.
Call the Ellis Team 239-489-4042 and Sande or I will be happy to determine your market value and discuss your options. Or, you can go on our website www.LeeCounyOnline.com and search the MLS or get an idea what you home might be worth with our Free online home estimator.
Rising rates isn’t all bad. It’s a sign the economy may heat up. Wall St is bullish on a better economy and better jobs here in the US. I stopped in an investment house the other day and asked them their outlook. They are bullish in 2017.
Many Realtors are bullish too. We think we’ll see more transactions as more sellers decide to sell. A good economy fuels more buyers, even if rising rates tempers price gains. We could still see rising prices, or stable prices. The jury is still out. For the past 11 months prices have not risen a dime.
2017 will bring change. Buyers and sellers need to know what that means for them. Unfortunately, plan on increased borrowing costs. Expect to see increased inventory, and more sales. Sales have been off this year, and with increased inventory comes more opportunity.
Buyers, now is the time to talk with your Realtor and your lender. You can call us at 239-489-4042 and we can help you with both.
Good luck and Happy House Hunting!