With the the Fed's decision to raise interest rates last month, many are left pondering the overwhelming question: “How is this going to affect real estate?” This issue is especially heavy on the minds of home buyers in Los Angeles and New York, as the rates will have direct bearing on coastal homes that are already the most expensive in the nation.
The Silver Lining of Higher Interest Rates
For experts in Los Angeles luxury real estate, the higher interest rates are bittersweet. At the end of 2017’s second quarter, the Fed announced that interest would be raised from 1% to 1.25%.
Even though higher interest rates are indicative of a burgeoning economy, the higher rates mean that obtaining a loan will be more difficult and expensive. Increased difficulty in securing a loan means that fewer buyers will be able to purchase homes, thus slowing the market.
The silver lining, however, is that sellers are going to respond to the slow market by knocking off thousands, or even millions, off of their asking prices in an effort to encourage buyers. With tools like more available credit combined with lower asking prices, the market will likely tip in the favor of buyers—despite the recent interest hike.
Challenges of Rising Real Estate Interest Rates
Experts predict that the recent interest rate increase will not be the last in 2017. One more quarter-point raise is expected by the end of the year, followed by three more in 2018.
Economists foresee at least two challenges resulting from the higher rates. The first challenge is that lawmakers might overestimate the economy and make changes prematurely. If lawmakers make changes too quickly, the market may falter. Another challenge that may arise is raising rates too slowly. If the market suddenly starts to improve and rates are not raised fast enough, this may cause the economy to overheat.
Interested in Politics and Real Estate?
Read how recent legislation like the Dodd-Frank Act might affect Los Angeles luxury real estate. Stay up-to-date on the latest market trends or contact one of our top real estate agents in Los Angeles to help you navigate the ever changing world of real estate.
Mercer Vine is the exclusive agent representing the Pacific Palisades, California real estate market as a member of the Haute Residence Real Estate Network. View all of their listings here.
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