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Here we go again. Experts are once again predicting that the Federal Reserve will soon raise interest rates. In fact, 90 percent of economists recently polled by the Wall Street Journal said they expect it to happen during the Fed's mid-December meeting (rates are currently at about 4.1 percent for a 30-year fixed mortgage, in case you're wondering).
The looming rate increases may be somewhat responsible for a decrease in broker confidence across the city, and a general feeling that business is slowing down a bit. According to the Real Estate Board of New York's Broker Confidence Index for the third quarter of 2015, both residential and commercial broker confidence is down, though the decline is larger in the residential arena.
Out of a maximum of 10 points, the overall broker confidence index was 8.34, representing a half-point drop from last quarter’s 8.84. The residential broker confidence index decreased to 7.83 from 8.21 last quarter. (Interestingly the fourth quarter of last year had the highest confidence ever -- at 9.22.)
"What we've been seeing over the past year is a decline in exuberance," says Michael Slattery, REBNY’s senior vice president for research. He says "it's a function of concern about interest rates and inventory and the stock market." Bear in mind, though, that the "confidence index is still high (anything over 5 is considered positive), but there are more economic factors on the horizon that could temper things," he says.
So what's a prospective buyer to do right this minute? "It might not be a bad time to lock in a loan," says Julie Teitel, a senior loan officer with Everbank, though she points out that to secure a six-month rate lock you'll have to have an accepted offer in a place for the bank to offer it to you. So if you haven't started pounding the pavement at open houses, do it ASAP.
And, of course, if you're on the fence about putting your apartment on the market, now may be as good a time as any. People may feel less inclined to buy in coming months if the rate increase is significant, and the offer prices may decrease as a result of buyers trying to make up for paying more in interest rates.
Or, if you already own a home you plan to stay in and have an adjustable-rate mortgage, now might be a good time to consider refinancing. The general rule of thumb is that if the interest rate is a percentage point or more lower than your rates, it's time to refinance, says Rolan Shnayder of Citizens Bank. But refinancing has been popular for years, he says. "We've been in a decreasing rate cycle for decades."
If interest rates increase by a significant amount (1 percent or more), Shnayer thinks the lower end of the market will feel the squeeze. That could have ramifications for renters, too, since people may choose to stay in their apartments longer, making empty rentals less common (in other words, inventory will be low), and rents will continue to climb.