What an Interest Rate Hike Means to You

This past week the Fed raised interest rates a quarter of a percent. A current 30 year fixed rate mortgage rate is now between 4.25% and 4.375%, depending upon where you shop and your credit score. The VA rate is 4% and six months ago was as low as 3.125%. So I can say with some assurance you’ve missed the bottom of the market for mortgage interest rates. With three more rate hikes expected by the Feds before the end of the year, mortgage rates could hit 5% by December 2017, if not sooner. Late home shoppers can expect to pay for every $200,000 financed, an additional $700 per year. Although, long term mortgage rates are not necessarily tied to the FED rate, they are a strong indication of what to expect for the remaining three quarters of 2017.
 
However, mortgage rate increases are not the only pass through expenses that will affect the housing market. Higher interest rates for acquisition, development and construction loans are considered the riskiest of any financial institutions lending portfolio. Increased interest rates for land acquisition, roads/water/sewer infrastructure and home building (vertical construction), will add to the cost of new homes. Many of these loans have built-in increases for interest rate hikes at quarterly intervals if not earlier. Most businesses selling goods and services for new home construction have lines of credit so you can expect carpet, cabinetry, plumbing, lumber and other goods and services to increase as well as mortgage interest rates—all of which will make the cost of a new home more expensive the third and fourth quarter of this year.
 
In Alaska, where no home products are manufactured and where all goods are imported, rising transportation costs will also contribute to the cost of a new home as well as remodeling products. Spring is considered the peak of the home buying season and in light of the expected increases in cost, now is the best time to buy a new home. Last week, 52 buyers pended a home sale, virtually the same as the 53 home buyers in 2016 for the same week. The difference in the market is in the active inventory. Last week it was 403 single family homes for sale compared to 525 in 2016. It’s a tight housing market with low inventory which also echoes the lower 48 lack of inventory. National and regional builders are buying land and opening new home communities all across the U.S. But, here in Alaska, buyers and builders are feeling the land pinch so you can expect the low inventory to continue into the fall with very few new subdivisions opening up this summer. That low inventory will continue to create price stability as buyers rush to beat the interest rate hike.