Posted by & filed under Buying, For Sale or Rent, Selling.

  1. what do higher rates mean for youWhat do higher rates mean for you?  Does it even make sense to talk about this now?  After all, while rates sometimes rise, they reduce a few days later.

However, change is coming.  Because the future will be different,  I believe the time is now to discuss this.

Expect mortgage rates to be higher next year.  Let’s talk about why this will happen and what’s best for you.

The Fed, Monetary Policy and Rates

The Federal Reserve Bank sets US monetary policy by pumping money in or out of the economy.  They do it by purchasing securities and bonds.  The more the Fed buys, the more money flows into the economy stimulating it.  The Fed slows down the economy by buying less (known as tapering).

Raising and lowering the Federal Funds Rate is another tool used by the Fed.  While this is the rate banks charge each other for overnight borrowing, it has a ripple effect.  Add in buying fewer mortgage backed securities and you have higher mortgage rates.

Inflation is a key concern too.  Once it reaches a certain point, the Fed will slow things down before it gets out of control.  This is where we are today.

What do higher rates mean for you?

What do higher rates mean for you?  Borrowing will cost you more.  Look at the numbers:  Let’s buy a $500,000 house with 10% down.  When rates rise 1% next year, this will cost you $255 more each month.  Furthernore, a 1% rise in rates equals 9% less buying power.  Ouch!

When this happens next year, a lot of entry level buyers will no longer qualify for a mortgage.  Everyone else will either have to pay more for the same house or buy a smaller home.

Don’t forget this too:  Slowing down the economy creates a recession.  There will be job losses and uncertainty thereby reducing the number of buyers even more.  The good news is that this will be a “soft landing” and not a crash.

Meanwhile everyone is telling you that there’s no end in sight to a booming real estate market.  Don’t you just love it?

What about the Bergen County real estate market?

I have to tell you that even in the worst real estate markets, Bergen County homes sell and sell well.  I’m not a crazy optimist.  Quite to the contrary.  I’m a highly realistic person.  Bergen County meets all the requirements for a strong real estate market.  Recessions might slow us down, cause a reset of values but it won’t stop the market.

The real estate market is cyclical.  We’ve had the longest positive run ever with another year ahead.  I feel that we’ll be OK through the spring but that the coming change will be very evident after June.

If you’re selling your home, don’t wait very long for 2 reasons:  The cost to own your home every month is more than any appreciation you’ll get.  As a result, you’re losing money every month essentially.  Also, you are in a stronger seller’s market now than you will be after the spring.

If you’re buying a home, consider these 3 things:  Even a 10% reset won’t make up for higher rates coming; you’ll never see rates this low again; long term homes go up 1.5% over the GDP so forget the ups and downs –  just enjoy your new home.

If you want specific data and to know whose forecasts I believe in, reply to me below.  It’s encrypted and confidential.

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