The Fed has started raising interest rates. How will it impact Long Island real estate owners?
The Federal Reserve began raising interest rates on December 16th, 2015. While some media outlets like CNN Money have done their best to put a positive spin on it, not everyone is convinced. Wall Street has been flinching at every mention of a hike for months. The last time rates were raised, in 2006, we ended up with the global financial and housing crisis. So how will this new policy impact Long Island real estate and its residents?
While the latest 0.25% hike may not sound like an economy destroying raise, there are some important factors for all to keep in mind. At the last hike in 2006 unemployment was lower, and the economy was on fire. The move didn’t soften growth; it caused a meltdown. A look at historic mortgage interest rates also shows that when rates go up, they can go far higher than most can remember. Many have completely forgotten the days of rates being in the double digits and what that is like. Soon 7% on a mortgage may sound like an incredible deal.
Long term fixed mortgage rates may take a while to rise, and interest on savings may take even longer. However, major US banks immediately hiked their rates on HELOCs (Home Equity Lines of Credit). Analysts expect rates on credit cards, auto loans, and other personal loans to rise fastest; making life in general more expensive.
Those with HELOCs and adjustable rate mortgages (ARMs) should be alert to just how high their payments may go. In many ways it may be a great time to buy a home on Long Island. The key is getting in, and locking in a low, long term fixed rate before they go higher. Even a modest lift could make the difference of hundreds of dollars per month. That will certainly price many hopeful buyers out of the already pricey NY housing market.
Owners and sellers need to get on their game too. The pressure is on to refinance and secure affordable payments. For others it may be a case of needing to sell while it is still attractive to buyers. This is turn could be good news for some Long Island home buyers that can use this to their advantage in negotiations.
Those slow to secure the best rates may consider the benefits of buying down interest rates with their mortgage lenders, and may benefit from pursuing other methods of reducing their total housing costs, including minimizing property taxes.