This week saw a dramatic dip in the stock market and that dip has continued for a few days. You might ask, "what does this have to do with real estate?". While this dip in the market is not solely related to inflation, much of what happens in the market is interconnected and inflation, which greatly affects interest rates, seems to be the crux. After the 2007 market crash interest rates dropped dramatically to encourage people to spend money and invest back into the U.S. economy. Now, the economy has been strong, unemployment is low and wage growth is high. Increased wage growth is a good indicator that inflation is higher than normal. This week news came out that average wages have increased by 2.9%, a larger increase than in the past 8 years. In order to combat high inflation rates The Federal Reserve will increase interest rates.
Why is this important for home buyers?
Since we know that the The Federal Reserves reaction to inflation is to increase interest rates we can expect an increase during the next Federal Reserve meeting on March 20th and 21st. This means that borrowing money to buy a home will be more expensive later in the year once the increase has happened. While we don't know if the increase will definitely happen we know that for the first time in nearly 8 years there is a clear evidence that systematic interest rate increases are coming.
How should you react?
If you are looking to buy greater than a year out, you can stick to your plan, save your money and look to buy in the future. If you have plans to buy in 2018, you may want to consider pushing your search up further and start looking sooner. Since it is very likely we will have an interest rate increase in March moving your search forward and looking to buy as early as possible in 2018 may save you money.
I was always told to get two opinions on everything. I reached out to Brian Dombrowski of Guaranteed Rate, Chicago's largest mortgage brokerage to hear what he had to say:
"Rates are still at historical lows and may continue to be for some time. After all, no one can predict the future. After the great recession the vast majority of economists largely expected rates to be above 5% two years ago and continue to push upwards. That never happened. Lingering low inflation numbers were the main reason why the fed kept a slow methodical increase to not spook the market. This is the first time in recent history where all signals are pointing to higher rates going forward. How high is the million dollar question? Taking advantage of the current low rate environment during a time of appreciating property values could be the best financial move for a long term investment. Making educated decisions with all of the information available is the key to any sound investment opportunity. Do not hesitate to contact me for guidance and unbiased insight on current market and future expected market trends. My goal is the make sure you know everything you need to know before taking any leaps."
If you have more questions Brian's contact information is listed below.
If you are thinking about buying a home this year you can call me at (312)539-9194 or email me at firstname.lastname@example.org to discuss your options. Interest rates are very likely to increase this year and if you make the right moves you can save thousands of dollars over the length of your mortgage.
Mortgage Broker - Guaranteed Rate