The First Rule of Rising Interest Rates: Don’t Panic

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The First Rule of Rising Interest Rates: Don’t Panic

On December 15, 2015, Posted by , In Buying Real Estate, With No Comments

The good news is the economy is recovering. The bad news is the Fed is raising interest rates. This should not come as a surprise for most prospective home­buyers, as they’ve likely been pressured to pull the trigger for months in anticipation of the rate hike.

Since the 2008 recession, the Fed has used low interest rates to help support the struggling economy. Last month, Federal Reserve President John Williams warned that there was a “very strong case” for the Fed to raise rates in December if the economy’s health continued to improve. With 298,000 jobs added in October and an additional 211,000 jobs added in November, the economic health is definitely looking up. Now we can be almost certain that interest rates will rise at the end of December.

What does an Interest Rate Increase Mean for Home Buyers?

Of course, one of the biggest changes will be the increased cost of borrowing. Rates have already begun gradually rising in anticipation of the Fed’s decision. Although rates have only climbed about a quarter­percentage point, that could still make a difference for some buyers.

Borrowers who may have had cold feet earlier this year are now feeling a renewed sense of urgency. Mortgage applications are on the rise as people attempt to lock in lower interest rates. In fact, there were around 20% more mortgage applications submitted this fall as compared with last year’s numbers.

While potential home buyers are definitely reacting to the expected rate hike, there is no reason to rush too quickly into buying. Rates will rise modestly at the end of the year and then continue to increase gradually over time. The main message for home buyers is that waiting until after the new year won’t make a huge difference, but don’t wait too long to buy.

Don’t Panic! Acting out of fear will likely lead to disappointment instead of elation. If you find the right home, go ahead and take advantage of low interest rates, but don’t feel pressured to “settle” for a fixer­upper out of fear of rising interest rates.

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