A Fed interest hike, such as the one introduced on Wednesday, inevitably leads to a lot of speculation about the effects on the economy and, by implication, how this might impact on the real estate market.
While no one can reliably predict those effects, given the huge number of variables involved in making an accurate forecast, we thought that today we'd look at some of the realities of the current situation.
Before we begin however, it's important to understand that interest rates and mortgage rates are not the same thing and, in fact, they don't have a very direct relationship with each other. Indeed, following Wednesday's Fed interest rate rise, mortgage rates have actually ended the week lower.
The reason for the mid-week rate hike can be explained by a quote by Fed Chair Janet Yellen: "the simple message is the economy's doing well." This is an extremely significant comment when we try to assess the situation going forward and we should remember that rate rises have been few and far between in recent times, as the Fed has been exercising cautious financial management as the economy has moved from recession to growth.
In the Albuquerque area, we can see signs all around us of a much better situation, not least with the arrival of the Facebook Data Center next year in Los Lunas and the news a few days ago that Hulu is considering bringing a call center to the area, with another injection of 500 jobs. These are big headline stories, but there are many more less visible signs of very positive things happening in the local economy.
And as we discussed in Tuesday's blog, the local real estate market continues to post great numbers as we head for the even busier spring season. And there was also good news this week with widespread national reports of the best home builder confidence levels for 12 years, such is the feel good factor moving forward.
So while an interest rate rise will mean higher monthly costs for some, that scenario has to be tempered by the fact that we are arguably now in a situation where the economy and financial markets will still thrive in spite of it. Essentially, that appears to be the Fed's reasoning at present.
There's so much strength in real estate right now. And while we've seen rises in mortgage rates in recent months, they are still in a remarkably affordable place from an historic perspective. Buyers are still very aware of this and we've continued to see incredibly robust sentiment in the face of these increases, with continuing low inventory of available homes for sale also being a major current driver behind high demand.
Why not contact us today and discuss how to make the most out of the very bright picture in real estate right now, whether you're a buyer, seller or investor.