For nearly a decade, we've had extremely low interest rates, but the tides may be changing.
The Federal Reserve's monetary policy committee raised interest rates by a quarter of a percentage point at its March 15 meeting. If the economy keeps growing as expected, then we should expect additional increases over the next two years.
The Federal Reserve rate impacts other loan rates including mortgages. So what will the impact be on mortgage rates? And what about the housing market?
We've been anticipating these rate hikes so this increase has already been built in to current mortgage rates. That said, we do anticipate a slow rise in mortgage rates this year, somewhere between 4.5 and 5 percent by the end of 2017.
What does that mean for an average buyer/home purchase? If you are buying a house with a $300,000 mortgage, a 1 percent difference from 4 percent to 5 percent means your monthly mortgage payments will go up from $1,432 to $1,610, which means you will be paying $178 more a month on a 30-year mortgage.
Locally, because of the high demand for housing, I don't expect any huge changes to home prices in Bellingham or Whatcom County. Higher mortgage rates may have some downward impact on that demand, but the population growth here is another driving force – and I don't see that changing anytime soon.
Plus, housing remains very affordable by historic standards. No one has a crystal ball, but if I had to make an educated guess, I would anticipate another healthy real estate year despite an environment of increasing mortgage rates.
Worth noting, this week I learned about some interesting temporary buydown programs offered locally. This type of program allows people get into the market a little easier with a lower initial monthly mortgage payment in exchange for an upfront fee. Some of the fees are even paid by the lender, or can be negotiated to be paid by the seller. Just another reminder that if you're house shopping, it's important to also mortgage shop (less fun, I know!) and check out what products are available at any given time.