Mortgage rates are already historically low and the Fed’s short-term rate bump — which indirectly affects mortgage rates — is not likely to make a big difference in the next few months. But, subsequent hikes by the Fed in 2017 could start to really add to the cost of a home.
Zillow and other industry watchers say mortgage rate increases have more of an impact in costly home markets, like San Diego County.
Rates have already gone up since president-elect Donald Trump’s victory.
Since the day before the election, the cost of a typical San Diego County home increased by $50,400 over the course of a 30-year fixed rate mortgage with 20 percent down.
The median home price in the county, $507,500, hit its highest point in a decade in October. Mortgage rates were 3.59 percent the day before president-elect Donald Trump’s victory, rising to 4.19 percent Wednesday, said Mortgage Daily News.
Mortgage rates typically track the yield on the U.S. 10-year Treasury. That yield has risen sharply since the election as investors take money out of bonds and put it in the stock market. However, the bond market could still change course as investors become less bullish on stocks.
Erin Lantz, vice president of mortgages for Zillow, said coastal California will feel the impact more than, for instance, much of the Midwest.
“Those higher price markets are where even moderate increases in rates can be felt more significantly,” she said.
Lantz said higher interest rates could slow home price increases, but it is not likely prices will go down. She stressed interest rates were still at historic lows and there does not seem to be any drop in purchase loan requests on Zillow.
However, subsequent rate increases could make more of a dent.
Lawrence Yun, chief economist for the National Association of Realtors, predicted Wednesday after the Fed announcements that the mortgage rate would be in the 4.5 to 5 percent range for a 30-year fixed rate mortgage at this time next year.
Randy Goodman, CEO of Accretive Investments, said at a real estate conference last week at the University of San Diego that even though interest rates have an effect on San Diegans, there are non-local buyers who can prop up the market.
He identified foreign buyers and so-called “baby chasers,” parents who move across the nation to be with adult children who recently had kids of their own, as people ready to pay higher rates.