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Culture » Take Me Home

How the Fed Interest Rate Hike Will Affect the Housing Market

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As anticipated, the Federal Reserve voted Dec. 14 to raise the federal funds rate by a quarter point. I thought it would be "fun" to show the effects of interest rate hikes on a $300,000 mortgage with a 30-year term:

As you can see, a quarter point difference is not that significant, but a half point can make the difference for home buyers already barely able to qualify.

As interest rates rise, existing adjustable mortgages and home equity lines that are tied to the prime rate will be affected. Most adjustable rate mortgages adjust only on an annual basis, but most equity lines will feel the increases immediately.

When you consider other interest rate hikes for consumer debt such as auto loans, credit cards and student loans, the aggregate effect can impact real estate. When interest rates go up, so does the household’s monthly debt.

National and local statistics show our housing inventory levels are at record lows and that new housing starts are way below historical averages, particularly during the most recent meltdown. It is generally agreed that more new housing starts are needed to accommodate first-time homebuyers, population growth and natural obsolescence. The increases in interest rates mean it will cost developers more to borrow money to pay for the land and construction costs which will get passed along to the buyers.

Things are not in an emergency situation yet, but looking at the aggregate effect on everyone’s pocketbook means it will likely affect housing in one way or another.

Home Price Round-Up

>> LOW

60847 Granite Dr., Bend, OR 97702

5 beds, 2 baths, 1,485 square feet,

.27 acre lot

Built in 1973

$163,900

Listed by Cascade Sotheby’s International Realty

>> MID

61042 Parrell Rd., Bend, OR 97702

4 beds, 1.5 baths, 2,149 square feet, .29 acre lot

Built in 1965

$375,000

Listed by John L. Scott Bend

>> HIGH

1182 NW Redfield Cir., Bend, OR 97703

3 beds, 3 baths, 4,008 square feet,

.97 acre lot

Built in 1997

$1,075,000

Listed by Bend Premier Real Estate LLC

About The Author

Nick Nayne, Principal Broker

Principal Broker at The Broker Network Realty in Bend, OR. Over 12 years experience in Real Estate working with buyers, sellers and investment properties.

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