The Federal Reserve increased interest rates by a quarter of a percent Wednesday afternoon. It is the second rate hike since December.
But what will this mean for Kansas City home buyers and sellers? Alex Owens, a realtor with Kristin Malfer & Associates, ReeceNichols provides some insight, as does Kevin Lewis with American Century Investments.
41 Action News: How will the increase in interest rates affect homebuyers?
Alex Owens: It all depends on your credit history. You will have to speak to a couple of lenders and see what's the best interest rate you can get. I would steer away from adjustable mortgage rates if you can. ARMs are where at the end of the year your monthly payment for the rest of the year depends on whatever the interest rates are doing at that moment. Right now with interest rates continuing to go up, an ARM is not in your best interest.
41: How will this impact people looking to sell their homes?
AO: We are seeing homes sold for way higher than asking price. I think these rate hikes are going to bring us back down to reality a little bit. We won't see so many multiple offer situations where the price gets bid up to $10,000, $15,000, even $20,000 over asking price. So, for seller's you're still likely going to get a good sales prices on your home, it just won't be going as high as it has been. It will still be a strong seller's market, and it will still be a good time to sell.
41: What about young homebuyers? They are already putting off buying a home.
AO: A lot of millennials will be marginalized by this. They have already put off buying a house longer than most generations, and a lot of them are under steeper student loans than previous generations. Because they really need to pay those off, we will probably see some millennials who were potentially in the market to buy a house drop off.
41: What's your advice to homebuyers?
AO: Maybe you shouldn't be looking at the top of your budget. You should probably be looking at what will be affordable to you. The lower end of your budget, the mid-end of your budget - whatever is going to give you some cushion if you can't find a house while interest rates continue to go up. You want to be in a comfortable position.
Don't be afraid of the housing market. I think the key is to find a good team of people to support you and to get you on the right path. Choose a lender who has a good reputation. I would work with a local lender if you can, one with a good reputation. They understand the local economy. The local economy is different than the national economy. We do follow trends of the national economy, but still regionally everything operates differently.
41: But this could be a good thing overall.
AO: What an increase in monthly mortgage rates means is that the [federal government] has more trust in the economy. They think the economy might potentially start boosting, they think the economy will do better, which in turn means people will start making more money, which means they can afford more house. In the long term it will equal out. It means the economy will do better and overall, that's best for everyone.
41 Action News: What does the increase mean?
Kevin Lewis: This is the policy rate that the federal reserve establishes. They use it to tap on the brakes, if you will, when they feel the economy is getting overheated. This is the third time they've tapped on the breaks in the past three years. The first being in 2015. It's merely meant to make sure the economy doesn't get overheated.
41: So that's a good thing?
KL: The underpinnings for this rate increase are based upon the strengthening economy that has led to fairly full employment but with rising prices. The underpinnings of the economy have been strong enough to drive the market so far, based upon the conditions of the economy.
41: So what should regular people do now?
KL: I think what every investor should always do is check in with their financial professional. We at American Century have professionals within our Leawood office and here on the Plaza who would be glad to speak with people about their personal situation to make sure their risk and outlook are aligned.