Author: yajneshkw

Rate hike cuts both ways for the housing market | Inman

Key Takeaways

• Historically, the psychological effect of rising rates seems to cut two ways.
• One way is prompting buyers to move quickly before rates rise even more.
• Alternatively, higher rates entice cautious buyers, who are already cutting it close with their personal finances, to hold off buying a house.

Nobu Hata is actively in the market to buy a home, and he knows interest rates are going up, but it is still “a little bit of gut check when it happens.” The Chicago resident dubs it a “personal hurdle” for some homebuyers. (Although Hata works for the National Association of Realtors, this is not the official company line.)

The Federal Reserve announced its first rate hike (0.25 percent) in almost nine years. The effect on the economy, the stock market and housing sales have been debated and analyzed by policy makers and the news media for almost a year.

 

For the housing market, most industry experts downplay the effect of interest rates, but historically, the psychological effect of rising rates seems to cut two ways:

• Prompting buyers to move quickly before rates rise even more
• Alternatively, higher rates entice cautious buyers, who are already cutting it close with their personal finances, to hold off buying a house.

“Even something as small as one-eighth increase in interest rates can alter the affordability for countless consumers,” said Jeff Chalmers, a vice president of Ross Mortgage Company in Franklin, Massachusetts.

Beyond the economics, the psychology cannot be underestimated with the “rate increase becoming more powerful than the rate increase itself,” said Keller Williams broker Jay Lieberman from Thousand Oaks, California.

The context of a rate hike is often ignored when analyzing the effects. Rates generally go up when the economy is growing, which is the most important factor shaping home sales and prices — not the bump from rate increases. A good economy generally means a healthy housing market.

Plus, even many experts do not understand the effect of a short-term rate hike by the Federal Reserve on mortgage rates.

“The appetite for investors to buy mortgage-backed securities and US Treasury notes, particularly the 10-year note, are what actually drive mortgage rates up or down,” said Danny Dietl, a broker at BRIX Real Estate in Minneapolis, Minnesota. The long term market is healthy, so mortgage rates could actually go in the opposite direction of short-term rates.

In other ways, the relationship between housing prices and interest rate increases is often misunderstand, or even counter-intuitive.

Keller Williams CEO Chris Heller in Austin, Texas, said that historically, “a 1 percent increase in mortgage rates equates to a 10 percent increase in home prices.”

The alternative to buying a house is renting, and rents have never been higher.

“The rental market is extremely overpriced right now and isn’t expected to correct for at least two more years,” said Samantha DeBianchi, founder and CEO of DeBianchi Real Estate, Miami.

Plus, the important factors shaping demand for housing may have less to do with interest rates and more to do with the complexities of the buying and selling process and qualifying for a mortgage.

MLS executive John L. Heithaus in Nashville, Tennessee, is considering buying an investment property, and his “biggest hassle is the damn paperwork and backup stuff more than interest rates.”

St. Paul’s Boardman Realty broker Teresa Boardman said we should we all get over the Fed hoopla.

“Interest rates were over 6 percent in 2005, and yet we sold more houses that year than we will sell in 2015. However, when you start with the whole ‘psychological’ thing, we get all ‘OH NO! We are all going to die!’”

Tips to keep in mind while buying your “dream home” on Behance

The term “dream home” means different things to different people. For some people the characteristics of a “dream home” might be entirely different from other set of people and so on. Therefore it can be concluded that everyone has a different notion of “dream home” but there are certain important things that stands same for everyone and all of us must keep these important things in mind while buying our dream-home. Keep reading to know these important things revealed by the experts from Mayur Homes:

 

Budget

 

Buying a home is a huge investment and it includes a lot of money. So you need to be careful in planning the kind of house you want to buy. Calmly sit and decide how much budget you can spare for your dream-home. Once you are sorted with the budget then you can start looking for houses and apartments that fall in your budget limit. This would save you from wasting your time in looking at houses that that out of your budget range.

 

Space

 

You must think how much space you and your family need. This would help you out in looking for properties of a specific size. Deciding the size of the house that you want to buy would also help you to get an idea about the money you would require in purchasing the kind of house you are looking for!

 

Neighborhood

 

A lot of people make the mistake of not paying attention to the neighborhood while buying a house and they repent later. Remember to do a thorough inspection of the area in which you are about to purchase a house. You may also speak to various shopkeepers or residents of that area in order to get a better understanding of that area. Choose an area that is centrally located as it would save you from a number of tensions later!

What a Fed rate hike could mean to mortgage borrowers – The Washington Post

This week’s expected rate increase by the Federal Reserve should not cause home buyers to panic, if history is any indication.

Back in the early 2000s, after the tech bubble burst, the Fed dropped its benchmark rate to 1 percent. Then in the summer of 2004, it began raising it by a quarter percent. At the time of the central bank’s first increase, the interest rate on a 30-year fixed-rate mortgage was around 6.3 percent. During the next four months, it dropped to 5.7 percent.

As the Fed continued to raise the benchmark rate, the rate on a 30-year fixed-rate mortgage declined, falling to 5.58 percent in June 2005. By the time of its last increase in the summer 2006, the rate on a 30-year fixed-rate mortgage was at 6.68 percent. It had gone up less than half a percentage point even though the benchmark rate had climbed from 1.25 percent to 5.25 percent.

Could mortgage rates follow the same course this time around? Possibly. But keep in mind the Fed hasn’t raised its benchmark rate in nearly a decade. It’s hard to predict how the market will react to such a momentous change.

“You’ve got 33-year-old bond traders who’ve never in their career seen” the Fed raise its benchmark rate, said Bob Walters, chief economist at Quicken Loans, the largest non-bank mortgage originator.

“You’ll clearly have some reaction in the market, even though [the rate increase is] expected. Just the reality of it plopping in their laps is going to create some volatility, not only in the bond markets but also the equity markets as people try to sort this out. People should expect prices of bonds and equities to start to gyrate.”

John Wake, a self-described “geek-in-chief” at Real Estate Decoded and a real estate agent in Arizona, believes that in 2004 when the Fed increased the benchmark rate it caused an already frenzied housing market to become more manic. Home buyers, worried that rising rates would prevent them for affording a house, became desperate to buy right away.

“The real estate economy is more sensitive to interest rates than most of the economy,” Wake said. “An interest rate low enough to move the needle on the national economy may cause the real estate economy to overheat. We may have seen a bit of that the last couple of years. And because real estate is more sensitive to interest rates, expectations of higher rates have a bigger impact on real estate than most of the economy.”

Wake points out that often what people expect determines what they do. If home buyers expect mortgage rates to increase, they will act as if rates are increasing even if they don’t.

“That could get people to buy sooner rather than later, which could drive prices up even more next year, which is what I am worried about,” he said.

Walters doubts a slight mortgage rate increase will have much impact on the housing market.

“I don’t think most people are going to run out and make a life decision for a quarter of a point interest rate,” he said.

Will the Federal Reserve rate increase affect you | News Journal

Ever since the recession some 8 years ago, the Fed has kept the benchmark interest rate at almost zero so as to help strengthen the economy. But, as per minutes from a Fed gathering in October, the rate increase is most likely in a few days.

Such economic changes usually come with both good and bad news. Here are some things which may just get effected by this rate increase:

Home sales

A rise in interest rates will put downward pressure on home demand as well as prices at least right now. Not many people are going to be selling homes if the rates go up. For anyone who is planning to sell their house, this may be a sign to panic. But if the increase is a small one, it shouldn’t cause the housing market to plummet again.

Bonds

There is no denying the fact that bond prices usually move in the opposite direction of interest rates. Whenever interest rates rise, bond prices fall. So if you want to sell your bonds before maturity, these high interest rates aren’t suitable for you. But if you want to keep them until they mature, you will be able to sleep well at night.

Stocks

The effect on stock prices is murkier than bonds. Stock prices usually fall from interest rates rise. But this isn’t always the case. During economic expansion, stocks usually go up with interest rates. But if an overheated economy is being cooled down by increased interest rates, stocks go down before they rebound.

Income and Employment

By keeping interest rates low, the Fed hopes that they will be able to encourage economic growth which is usually measured using employment numbers. If the rates rise, it will show that employment is improving and more firms are hiring. And more hiring obviously means more income.

Congratulations to my client for getting their offer accepted in the competitive market like Sunnyvale. It is beautiful home that is central to major business, public transportation, shopping etc. Congratulations.

Bayview Ave, Sunnyvale, CA

Should you or anyone else you know is thinking of buying or selling a him, I will be delighted to provide my services. Please let me know – yrai@kw.com or 408-547-7845.

Home Buying And Home Selling Tips: Keep These Tax Tips in Mind! : Home : Realty Today

Home buying and home selling may come with a lot of expenses which is why it’s better if you are aware of what benefits you can claim come tax time. As the New Year comes near and you’re taking care of your taxes, here are some things that you wanna think about:

Capital Gains

If you gained money from your home sale through a capital gain, this amount may actually be excluded from your tax filing. If you have lived in the property that you sold for at least two years of the five years before you sold the house, you do not need to report this on your tax filing, hence a significant financial win.

Gain Reports

If you have not met the previously mentioned condition (living in the home for 2/5 years), you’re gonna have to report that sale and capital gain during tax filing. This is important whether you want to claim the amount or not. If this is your case, it’s better if you make yourself aware of the ‘Net Investment Income Tax’ before you start filing your tax so you can assure the accuracy of your claim.

2 Year Claim

While it’s beneficial to not report your gain as much as possible, it’s important to remember that you can only exclude gains you received from a sale every two years. So if you have moved multiple times in the previous years, you’re gonna have to report any amount that you have gained from these sales.

Selling At A Loss

It is certainly more ideal if you earned money from your home, but if you gained less than what you paid for for the property, you may not be able to claim this. As disheartening as this may be, you really cannot deduct this amount off your tax return.

Buying or selling a home has benefits beyond the actual transactions, and there are ways to make your tax filing pleasant if you are aware of all possible tax benefits. If you want to pursue real estate business in the future, contact your agent for specific details and assistance.

Here’s how increased interest rates will impact housing

An increase in federal funds would almost certainly prompt interest rates to move higher, and the housing market is already moving in anticipation of this, says one analyst.

“The housing market’s capacity for existing-home sales is declining with the expectation of a Fed rate increase pre-adjusting mortgage rates and causing a slowdown in house price appreciation,” said Mark Fleming, chief economist at First American Financial, in a new report on the fourth quarter Real Estate Sentiment Index.

“Market capacity remains modestly in excess of actual sales due to leverage-assisted housing asset inflation, which is home price appreciation fueled by low mortgage rates. Rising mortgage interest rates and moderation in house price appreciation were the most important market fundamentals that reduced market capacity this month. Now that interest rates are pre-adjusting in response to signals from the Fed for a highly expected increase in December, demand is also declining.”

Fleming says that home appreciation would likely be slowed down by one percent more than expected if there’s a 25-basis point rise in the 30-year fixed-rate mortgage. This would lead to existing-home sales slowing down by around 2.5 percent on an annualized and seasonally adjusted basis. That would amount to around 150,000 less sales a year.

While that’s bad news for real estate pros, it could also have an effect on home buyers too. According to this article in Forbes, at current rates, a 30-year fixed-rate mortgage with ten percent down payment on a home valued at $350,000 would cost buyers $1,503.86 per month, in addition to taxes, homeowner’s insurance and Private Mortgage Insurance. But if interest rates rise to 4.5 percent, that same mortgage would increase to $1,596.06 per month – $92.20 per month more. Alternatively, if rates rise to fiver percent, the same mortgage would cost an extra $184.40 per month.

Even so, Fleming says that “expectations for future home ownership demand remain positive, despite changing market conditions.”

However, Fleming said interest rates would only have a significant impact on residential housing transactions if they exceed 5.1 percent.

Fed interest rate hike may have less of an impact than you think – EconoTimes

There is a very high chance the Federal Reserve will raise interest rates next week.

It would be the first time the Federal Open Monetary Committee (FOMC) – the Fed’s rate-setting team – has lifted its benchmark rate since 2006, beginning the so-called return to normal.

Economists, traders and policymakers have been pontificating, prognosticating and placing bets about this decision for a long time, because the impact is expected to be far-reaching.

So how will higher rates affect you?

Depending on your situation, an increase in rates could be wonderful news, a disaster or another headline story that after the initial excitement has no impact on your life.

Whether you save, travel, want to buy a house or invest in stocks, a rate hike will almost certainly affect you in one way or another – though perhaps not as much as some commentators will make you think.

Who gains when rates go up

If you have a lot of money in savings accounts, certificates of deposit (CD) or money market accounts, higher rates are wonderful news.

Many retirees in the US live off their Social Security checks plus interest and dividends from their savings. When interest rates rise, retirees and people with large amounts of cash savings earn more money. This enables them to spend more.

Even if you don’t have a single penny in savings but live or work in an area with a large number of retirees such as southern Florida, Arizona or parts of California, the interest rate increase means more jobs and an overall better economic situation.

Another group of people who will love higher interest rates are people planning on traveling abroad for vacation. Interest rate changes often have an impact on a country’s foreign exchange rate. When interest rates rise in the US, the dollar often buys more foreign currency. This makes traveling to other parts of the world much cheaper.

The reason interest rate changes affect foreign exchange rates is that people around the world have saved money. When US interest rates rise, people living outside the country want to put their money in US banks and money market accounts to get the higher rates.

To do this, they need to sell their local currency and buy dollars before making a deposit. This results in the price of dollars going up and the price of other currencies going down. US tourists will find when visiting other countries that each US dollar buys more hotel rooms, food, museum admissions and other attractions, making travel after the rate hike much more pleasant.

The change in foreign exchange rates also makes people who sell goods to the US much happier. Japanese cars, French wines, Chinese televisions, Brazilian coffee and many other items will become cheaper for people in the US. This reduction in price causes people in the US to buy more products from abroad, which will boost employment in countries selling these items.

Who loses

If you owe money on your credit cards, then higher rates are a disaster because you will shortly be forced to pay more money every month.

In 2010, US credit card issuers had to follow new rules in the “CARD Act.” One of the key provisions of this act was to give people at least 45 days before their interest rate changed.

However, the CARD act’s section 171(b)(2) contains a loophole that enables interest rates to go up much faster. If the credit card company determines the holder’s interest rate by adding a fixed percentage on top of a widely available index, like the “prime rate,” then there is no need for a 45-day notice.

How long will it take your credit card company to start charging you more money? For the average person it will take about two weeks.

I just received a notice from my credit card company to remind me that the interest I pay on any balances “will vary with the market” and that if interest rates rise, “any new rate will be applied as of the first day of your billing cycle.”

This means for me and many other credit card holders that the shortest time frame to begin paying more is just a few days after the Fed makes its decision and the longest time is 45 days, for people whose banks need to send out a fee hike notice. Either way, people with credit card balances are affected very quickly.

Almost everyone associated with residential real estate is not happy that interest rates are rising. Home builders, furniture makers, appliance salesmen and others will likely see a drop in sales as rising rates make purchasing a new home more expensive, because borrowing money to pay for the new home costs more. Additionally, people with variable rate mortgages will owe more money each month to pay for their homes, giving them less money to spend.

Stock investors will also be adversely affected, likely through lower returns and prices. My full explanation is found here, but the synopsis is that when interest rates rise, investors value profits earned in the future much less and are not willing to pay as much for outstanding shares of stock, thus causing prices to fall.

The price of stock is important because some people, like retirees, base their spending not only on their Social Security checks but also on the value of their portfolio.

The final groups that will lose out when interest rates rise are people in the US who sell products abroad (exporters) or who deal with foreign tourists.

Exchange rate changes that make imports 10% cheaper make exports 10% more expensive. This means when importers are happy, exporters are miserable. Foreign tourists will find the US a more expensive travel destination. Foreign buyers will find US crops like wheat, corn and soybeans more expensive. Large multinationals, like Boeing, will have a more difficult time selling planes and other expensive capital equipment outside the US.

The final score

In general, it is hard to say who wins absolutely because many of us do not fit into a single category. We may win a little and lose a little.

For example, I have money in savings, which will earn more interest, but I also owe money, so it means I’ll have to pay a higher rate. I love traveling outside the US, which will cost me less, and this makes me better off. However, some of my pay comes from teaching, and there has been a surge in foreign students attending US universities over the past 20 years. If foreign students stop coming to the US because it is too expensive, fewer college professors will be needed, which is bad for me.

When the FOMC raises rates, large headlines and talk show hosts will scream that the world has changed with the end of seven years of near-zero interest rates. The hype and coverage will probably be tremendous.

However, an interest rate hike makes different parts of each person’s finances better and worse off. For most of us, thinking seriously about all the effects will result in mixed feelings about any upcoming interest rate hikes.

My guess is that for many readers, the offsetting forces will make this another headline story that, after the initial excitement has worn off, actually has relatively little effect on your life

Housing Market Expansion to Continue in 2016: CoreLogic – 24/7 Wall St.

Housing prices have risen by around 6% over the past 12 months and, barring any major economic downturn, demand for housing should support additional growth in home prices next year. Researchers at CoreLogic have noted five factors that will affect the housing market in 2016, based on assumed overall economic growth of 2% to 3% in the United States.

First is an expected increase in the Federal Reserve’s policy rate of around 1% between now and the end of 2016. That will affect adjustable-rate mortgage holders and cost new fixed-rate mortgage borrowers an additional half a percentage point, pushing mortgage interest rates to around 4.5% by the end of 2016.

Second, more than 1.25 million new households are projected to be formed in 2016, most of which will be seeking rental homes.

Third is continued strong demand for rental housing. CoreLogic expects rental vacancy rates to remain low and rent payments to rise faster than inflation.

Fourth, the owner-occupied housing market should see a rise in both sales and prices. Purchase demand may lead to the best sales year since 2007, and home prices could appreciate in a range of 4% to 5% during the year.

Fifth, mortgage originations for single-family homes are likely to decline by 10% in 2016, while new loans for multifamily properties are likely to rise. Overall CoreLogic projects that total loan originations will rise by 10% to 12% and that home equity lending will also increase. Refinancings, however, could drop by a third.

What a Fed Rate Increase Could Mean for You – NerdWallet

Since the Great Recession started eight years ago, the Federal Reserve has kept its benchmark interest rate near zero as a way to strengthen the economy. However, according to the minutes from an October 2015 gathering of Fed officials, a rate increase is likely in December. A decision should be announced Dec. 16.

Any economic change brings good news and bad news. Here are a few parts of your financial life that might be affected by a rate increase:

Home sales

Rising interest rates generally put downward pressure on the demand for homes and home prices, at least in the short term. So if the Fed raises rates, you may not see very many “For Sale” signs in front yards for a while.

This might make you nervous if you’re planning to sell your home soon. After all, most people’s wealth is in their homes. But a small rate increase doesn’t necessarily mean that the housing market will plummet. If rates stay near their historic lows, many prospective buyers will realize that they still can afford a new home and will buy one, anyway.

Bonds

Interest rates and bond prices move in opposite directions. When interest rates go up, bond prices go down. If you’re thinking about selling your bonds before they mature, higher interest rates will work against you. However, if you’re holding those bonds until maturity, you can sleep well. You’ll still collect interest, though at a lower rate than you would on newer-issue bonds.

If you own shares of a bond mutual fund, a rate increase will more than likely cause those shares to temporarily drop in value. But fund managers will begin to buy higher yielding bonds, which might help soften the blow. For the future, consider this strategy used by proactive bond fund investors: Stay out of long-term bond funds, which take the biggest beating when rates rise.

Stocks

The effect of rising interest rates on stock prices is a little murkier than its effect on bonds. Stock prices generally decrease when interest rates go up, but that’s not always the case. If we’re in an economic expansion when rates rise, more often than not, stocks go up. Conversely if the Fed is raising rates to “cool down” an overheated economy, stocks tend to go down before rebounding. If you own CDs, their rates will increase immediately if the Fed raises the benchmark.

Hiring and income

By keeping rates low, the Fed hoped to encourage economic growth, which is often measured by employment numbers. If the Fed does raise rates, it would be a signal that employment is recovering, and firms are hiring.

More hiring means more income for everybody. And higher incomes tend to solve other problems, including low demand for housing. Even though a rate hike would mean that it costs more to borrow money, higher incomes help offset these costs.

Higher incomes also mean more spending. More spending means that workers keep their jobs. And the cheap prices that we’re seeing at the gas pump put even more money into consumers’ pockets that they’ll want to spend.

In the Fed’s words, it might be time for a rate increase because there’s been a “tightening of the labor market.” In plain English, that means more hiring and less firing. Ultimately, the Fed’s decision reflects growth — which means that, for you, the good news of a rate increase should hopefully outweigh the bad news.