For the second time in 2017, the Federal Reserve raised interest rates this week, moving its benchmark rate to a range between 0.75 percent and 1 percent, as the New York Times reported. It's a strong signal of the economy's slow-but-steady improvement, but will it change much for NYC buyers?
In the immediate future, not too much. As we reported when rates first went up in January, the increases have caused a slowdown in the refinancing market as interest rates look less favorable, with lenders focusing more on home equity lines of credit, which often are used to pay for renovations.
But while a certain segment of the market might balk at higher monthly payments, as Miller Samuel appraiser Jonathan Miller tells us, close to 50 percent of sales in Manhattan are all-cash transactions, meaning that nearly half of the borough's deals won't be affected by interest rates at all. And even for buyers who might be concerned, higher interest rates tend to mean looser access to credit, and even the new, higher rates are near historic lows.
"[Higher interest rates] do pull back some demand because there are people on the margins who get knocked off," says Miller. "But in 2007 interest rates were around 6.25 percent, and when I first bought in 1996, I was thrilled to get a rate of 8.25 percent, so the reality is that this current increase isn't as severe as some might think."
As one investor told the Times: "The first four to eight interest rate hikes are the low-hanging fruit. The real test will be whether the economy can withstand positive real rates. And that still seems to be a 2019 topic."
In the midst of a general market cooldown citywide, says Miller, "I think the lesson is that it's not all about interest rates, which are just one piece of the equation in terms of purchasing a home. There are other variables like credit conditions, so interest rates alone don't make or break the market." And theoretically, if the economy is doing well enough that the Fed feels comfortable increasing rates, that spells good news overall for the cash-flow of prospective buyers.
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