Maximize your home-buying power now
<p class="p1">In mid-December, the Federal Reserve increased its main borrowing rate, which affects everything from credit card to mortgage rates. Almost immediately, the benchmark 30-year fixed-rate mortgage rose from 4.15 percent to 4.19 percent. This new rate is the highest since March.
<p class="p1">What does this mean for consumers? As a rule of thumb, if the 30-year mortgage rate increases by 1 percent, consumer buying power is reduced by roughly 10 percent. Would-be buyers who were shopping for a $180,000 home have a new upper limit for their budget: $162,000.
<p class="p1">Russell Castille, a mortgage lending officer with Merchants and Farmers Bank’s Sulphur location said the time might be ripe for would-be buyers. “If you’ve been thinking about buying a home, it may be time to firm up your plans, before we have any more interest increases.”
<p class="p1">In addition to rising interest rates, home prices may also be increasing. The National Association of Realtors is projecting an increase of 3 percent in 2018, according to a statement on its website.
<p class="p1">“This combination of factors could narrow consumer choices even further,” said Castille.
<p class="p1">The Federal Reserve does not directly control mortgage rates, but it does have a strong influence on them. The Fed’s policy-making body, the Federal Open Market Committee, sets the rate banks charge each other to borrow money overnight. This rate, in turn, has an effect on consumer lending.
<p class="p1">The Fed’s practice is to keep rates low to stimulate the economy and strategically raise them to control the rate of growth and avoid inflation. Right now, the Fed is generally optimistic about the U.S. economy. In a statement announcing the rate increase, it also predicted that labor market conditions will remain strong and that economic activity will expand.
<p class="p1">According to the Financial Times, the Federal Reserve has already penciled in three quarter-point rate increases for the coming year, so more increases are in store.
<p class="p1">While interest rates don’t vary much nationwide, home prices depend on local economies.
<p class="p1">In the Lake Charles market, the median listing price is $257,562 while the median sold price is $202,254 according to one area real estate broker. In real estate, the median is the price where half the homes were less expensive — and half were more expensive — than the median.
<p class="p1">“The housing market in Calcasieu Parish has remained fairly stable,” said Caleb Waldmeier, a loan officer with Merchants and Farmers Bank’s Lake Charles location. “Now may be the time to take advantage of the more than 1,300 homes on the market here.”