Just announced the Federal Reserve raised short-term interest rates by a quarter percentage point. This will drive up credit card percentages, car loans and many short-term obligations It will also increase the rate for adjustable rate mortgages. This is the eighth move higher since 2015 and talk is it won’t be the last.
Longer term mortgage rates will likely remain unaffected unless the inflation rate begins climbing. The yield of the domestic 10-year treasury note is what affects longer term mortgages rather than short-term interest rates.
However, something that is affected by the higher interest rate is a cooling of the housing market. The fear of an uptick in interest rates often keeps buyers from making the commitment on a home purchase. But other goods news out there like employees earning higher wages should help to off set these fears.
Good thing is if you are a saver then your savings account, retirement accounts and bonds will all start earning more interest. Money market accounts and CD rates will increase with the uptick of the prime rate. Conversely, if you have a credit card, now may be the time to get it paid off.
The Chief Economist for Fannie Mae, Doug Duncan expects this week’s Fed raise to have no affect on the real estate market as a whole. He does expect interest rates to drift from 3.9 percent to 4.1 percent which would boost the monthly cost of a $225,000 mortgage by $26 to $1,454. This may not be enough to deter most ready buyers. More a driving factor will be low inventory which continues to drive home values higher.
Construction spending is up 10.7 percent this year as hotel, manufacturing and office building takes off. Raising borrower costs on these projects is not likely to affect their funding which would have been in the pipeline before this recent Fed hike.
On another note, CoreLogic is reporting that mortgage fraud is up and has continued to rise since Quarter 2 2017 by 12 percent. False credit report disputes and income misrepresentation are the top issues. Frauders are attempting to get items off their credit report by claiming identity theft. Lenders end up using limited resources to investigate the claim. Also, borrowers attempting fraud are misrepresenting their income. They are attempting to get mortgages when they have been in their jobs less than a year so their true income is not showing up on IRS tax returns. We are turning into a society that wants to see what they can get no matter who they must lie to or falsify.
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