Interest Rate Hikes

Interest Rate Hikes

With the recent interest rate hikes, is it still a good time for property owners to sell?

It will depend on a number of factors but if the feds continue to raise the interest rate over the next year it will probably be a good time to sell. However, some economists predict that this will be the only rise in interest rates and in fact they may offer a reduction if the economy slows down again.

In essence, the Federal Reserve had little choice but to raise rates as failing to do so would indicate perceived weakness in the economy that might halt further growth. Still, most of the predictions for the coming year indicate that unless the economy takes an unexpected downtown that will see further interest rate hikes through the end of 2016.

The Good News about Rate Hikes

Arguably the best reason to raise the interest rates is that it demonstrates confidence that the economy is growing strong. Such confidence leads to greater lending, better returns on savings accounts, and further economic growth.

The Bad News about Rate Hikes

The bad news about interest rates going up is that it can limit spending and reduce the affordability of buying a new home. Payments for auto loans, credit cards, and the like go up and the debt-to-income ratios become impacted as well which will limit the number of people qualifying for mortgages. Higher interest rates mean paying more per month for home loans and will impact resale values as well.

Another factor is that many investors will no longer seek out income producing properties that are priced based on the 4% level or less. This means that if a rental property is only breaking even now, it will actually lose money for the next investor.

To Sell or Not, that is the Question

The real question for home owners is whether this is the time to sell or do you hold on to your property hoping that the situation will improve?

Historically, it is generally wiser to sell immediately before interest rates go up any further. However, you will need to look at your own particular situation and decide if this is the best course of action. If you were planning on selling soon such as within the next year or two, then it would be smart to go ahead and sell now before interest rate hikes go up even further.

If you have no firm plans to sell and enjoy living on the property you own, then you should keep in mind that over the long run interest rates will go up and down. While today is a good day to sell, it may be better 10, 20 or more years from now if you are planning for the long term.

For the foreseeable future there will be further interest rate hikes as long as the economy keeps growing. So if you were planning to sell soon, then you may want to go ahead and put your property on the market quickly before the rates go any higher so you maximize your resale value.