Interest Rate Increases Could Affect Real Estate Costs
By Real Property Management - Sunday, January 19, 2014
The Federal Reserve Interest Rate is scheduled to increase and with it the real estate market is projected to slow while prices increase. According to Wells Fargo and JPMorgan Chase, the number of mortgages fell dramatically during Q4 2013 as the Federal Reserve Interest Rates rose. According to Well Fargo, new mortgages and refinancings fell from a high of $125 billion in 2012 to $50 billion this year. The conclusion of JPMorgan Chase and Wells Fargo is that the drop is tied directly into the Federal Reserve Interest Rate.
Locally, this can be witnessed through the typical monthly cost of a new mortgage. In January of 2013 the average monthly mortgage cost was $1,150, compared to forecasts of Q1 2014 where the average is expected to be $1,695. Noting this increase, the San Diego Union-Tribune noted:
Further increases would pile a new problem onto the region’s housing market, which is distorted by a chronic supply shortage and soaring costs caused by local and federal government policies.
Looking directly at the fixed rate, the increase can be noted from 3.5% to 4.5% on the average fixed-rate, 30-year mortgage. Most of the increase started in May when the former Federal Reserve Chairman, Ben Bernanke, instituted the federal plan to reduce central bank bond purchases to keep rates low.
The good news is that interest rates are not forecast to increase quickly. Learning from the past, the Federal Reserve plan is not to increase interest rates to level inflation.
All in all, increased interest rates are part of the overall plan that Bernanke wanted to follow, and currently the new chair of the Federal Reserve, Janet Yellen, has indicated that she will continue with the plan as it is currently being executed.
Looking forward, Rent RPM is always interested in the local market and staying abreast of the news and changes to the area. 2014 appears to be setting up to be an interesting year with numerous challenges and changes ahead. Remember that Rent RPM is always ready and willing to advise and to manage real property in the North San Diego County area.
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