Situation Could Improve for Homebuyers
While the Federal Reserve’s actions to increase interest rates have placed home ownership even further out of reach for many Americans, those steadily rising costs might eventually help would-be buyers, said the chair of Cal Poly’s Finance Area.
“House prices are more likely to come down in the longer run as the Fed holds its course of fighting high prices with restrictive monetary policy,” said Ziemowit Bednarek, an associate professor of finance. “In that sense there is definitely hope for prospective buyers.”
Hope is not something non-wealthy homebuyers have experienced much of in recent years.
The median existing home price in the United States reached an all-time high of $407,600, according to Reuters. That’s 14 percent higher than last year.
While the 3% mortgage rate was attractive to buyers during the pandemic, lack of available housing led to a seller’s market that drove prices upward.
But now that interest rates have increased, so too have mortgage rates, meaning already expensive homes will be even more costly to finance.
“In times of the restrictive, or high, interest-rate policy, loans are more expensive for both businesses and individuals,” Bednarek said.
Hoping to ease record inflation while preventing a recession, the Fed has increased the interest rate three times since March — with more penciled in this year. That in turn results in a higher mortgage rate, which doubled to 6%.
The impact is obvious to the consumer: The monthly mortgage for a $250,000 home would cost $356 more while the mortgage for a $750,000 home would be $1,067 more each month, according to the Washington Post.
Yet, again, there’s a little hope. Because eventually people are likely to just stop buying homes.
“Expensive loans will dampen the consumer demand and, at least in theory, lead to the lower demand in the housing market — and therefore lower prices,” Bednarek said.
But there is a caveat: “Since the COVID 2019 pandemic started in March of 2020, the economy has been undergoing a number of structural shifts — one of those being working from home,” Bednarek said. “People realized that they can move to a cheaper location and keep their job by working online. Of course, this caused the prices in those originally cheap markets to skyrocket.”
Also, higher interest rates could impact the construction of new homes, which already stalled during the pandemic, contributing to higher prices.
“Companies will be less likely to expand and hire, which will only deepen the shortage of new homes,” he said. “This part may, in fact, counteract the effect of expensive credit on the housing market itself, and keep existing home prices up.”
The recent developments prompt mortgage rate strategies. Buyers who lock into a 15- or 30-year fixed-rate mortgage would be protected from future interest rate increases. However, there are occasions where a more unpredictable adjustable-rate mortgage might make sense.
“If you do not plan to hold on to the house for too long, or if interest rate increases are not expected to last, it may make more sense to go with an ARM,” Bednarek said. “In our current market situation though, it looks as if the Fed is poised to keep hiking interest rates in the foreseeable future.”
Help Needed on 4th of July
Need to make a little fast money? The Cayucos Lions Club is looking for some folks to help with their Annual Cayucos Independence Day Parade and Fireworks Show.
The club needs about 14 people — four in the morning shift from noon to 3 p.m.; four from 3-7 p.m.; and six from 7-11 p.m. Pay is $20 an hour.
We’re told most of the restaurants will offer some food and drinks too.
If interested, contact the Cayucos Chamber of Commerce at (805) 995-1200, and leave your name and phone number.
Woods Urgently Seeks Kitten Foster Volunteers
June was National Foster a Pet Month, but the need continues. Woods Humane Society says it needs more foster homes in order to help the many homeless kittens in our community that are too young or too under-socialized to come to the shelter yet.
“We need as many foster homes as possible right now,” says Woods Intake and Foster Coordinator Kelsey U’Ren, explaining that June is historically the height of kitten season on the Central Coast, and this year is proving to be no different. She says Woods has 104 kittens in foster homes right now, with more requests coming to them daily. Over the course of the month of May, the organization provided foster care for 147 kittens.
To help local community members determine whether fostering is right for them, Woods has created a foster page on its website, www.WoodsHumane.org/Foster, which includes links to the foster application forms for both the SLO and Atascadero shelter locations, an infographic about what to do if you find kittens, as well as its recent kitten season webinar, featuring a bottle-feeding demonstration and answers to frequently asked questions.
For more information about Woods, visit www.WoodsHumane.org or call (805) 543-9316. Woods Humane Society is located at 875 Oklahoma Ave., San Luis Obispo and at 2300 Ramona Rd., Atascadero.
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