The Fed recently made a very important statement that could have a profound impact on the housing market for homebuyers and sellers alike.
In a nutshell, the Fed stated that they are going to start cutting back their balance sheet.
What does that mean?
Since the Great Recession started 10 years ago, the Fed has been trying to keep interest rates low. In order to do so, they’ve been purchasing an enormous amount of mortgage-backed securities and U.S. Treasury bills, bonds, and notes. Over the past few years, they’ve amassed $4.5 trillion of those securities.
To put that number in perspective, the GDP of the United States is $18 trillion. Now, 25% of that is held by the Fed.
However, since the Fed wants to cut back their balance sheet, they will start selling these securities.
They will start gradually by selling $10 billion per month, but that number will start to go up until the Fed is selling $50 billion of securities each month.
As that happens, interest rates will go up.
“Prices will have to soften as interest rates increase.”
An interest rate increase could happen before the end of the year. In 2018, there could be as many as three interest rate increases by the Fed.
These increases will impact rates across the board from housing to corporate to credit cards—you name it.
What does this mean for the housing market?
Ultimately, homes will become less affordable.
The housing market has been strong for the past four or five years. This year alone in Southern California, we’ve seen a 9% increase in the median price of a home. If rates go up, it will hurt buyers’ ability to purchase homes at the current prices, so prices may start softening when interest rates go up. In fact, prices will have to soften as rates increase.
What does all of this mean for you?
If you’ve been thinking about buying a home, now may be a great time to do so before rates go up. If you’ve been thinking about your dream house, now is a great time to put your house on the market and move up into your dream property.
Whether you’re in a 2-bedroom condo and want that 3-bedroom, single-family home or you want to live by the beach or in a better school district, now may be the time to get a good price for your current home and capitalize on these low interest rates to purchase your dream home.
If that’s the case, you can always get an idea of what your home is worth in the current market with our online home valuation tool.
If you want a more precise idea of what your home will sell for, or if you have any other real estate questions, just give me a call or send me an email. I would be happy to help you!
