THE BUSINESS BEAT : Rate Hike Won’t Close Door on Hot Housing Market
The Federal Reserve Board’s recent interest rate hike, aimed at slowing consumer spending to stave off inflationary threats, should have little effect on Ventura County’s roaring housing market, according to analysts.
In a move that had been anticipated by both economists and lenders, the Fed approved a quarter-point increase in the federal funds rate, boosting it to 5.25%. That has driven mortgage rates up similarly to between 7.5% and 8% for a typical 30-year, fixed-rate loan.
Higher mortgage rates will make it more expensive for prospective homeowners to buy property, but analysts predict it will have little impact and may even push some people into the market.
“There’s so much slack in the economy now that I don’t expect this to have much of an effect,” said John Karevoll, a real estate analyst at Acxion/DataQuick, which tracks the Southern California housing market. “It might even get some of those people who have been sitting on the fence into [the market].”
He added that the prospect of another rate increase, widely expected to happen before the end of the year, could nudge those who have been waiting to purchase into the market so they can lock into an affordable mortgage rate.
Over the past year, the Fed has worked to tweak the national economy through a series of six interest rate changes.
Beginning in September 1998, the board ratcheted down the rate from 5.5% to 5.25% and bumped it down again two months later to 5%.
Earlier this year, the rate was cut to 4.75%, but few thought that would hold and expected the Fed to begin increasing it soon. In June, the rate was increased to 5%.
“We’re right back to where we were a year ago, and last year the market was crazy,” said Mark Schniepp, director of the UC Santa Barbara Economic Forecast Project. “So I don’t expect this to have a great effect on the market. . . . I think it could absorb another [quarter-point] increase before we started to see anything dramatic.”
However, even with the county’s ability to absorb interest rate changes, some people will be affected by the change and could be shut out of the market for a new home.
Analysts believe the value of residential property in the county will continue to rise during the next year--past the record median home selling price of $244,000 set in June.
As values increase so does the amount of money buyers will have to borrow, which Schniepp and others believe will force those people now on the margins out of the market entirely.
“That’s where the impact is going to be felt in the short term,” Schniepp said. “But I don’t think those numbers are big enough to make much of an impact on the market as a whole.”
Although interest rate hikes generally send shivers through the Realtor community, most said they aren’t overly concerned about the most recent increase, adding that buyers still have so much liquidity that they are able to spend the extra money.
“I don’t think that the level that it’s at right now is setting the tone of the market,” said Pat Evans, a Realtor at Coldwell Banker in Westlake Village and president of the Conejo Valley Assn. of Realtors. “For most of the buyers we’re seeing, it isn’t an issue. . . . It’s not affecting their decision to buy or not, and I don’t think it will.”
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