An increase in the federal funds rate will be felt in the bond/mortgage markets and the prime rate, which drives interest rates for consumer credit and business loans. However, since the Fed increase will likely be 0.25 percent or less, it will have virtually no impact on the San Francisco market.
Obviously, some buyers who are stretching to afford their home purchase will have to reduce their budget, but those buyers are not driving the market. The most competitive buyers will absorb the increase as another cost of the loan.
To put this in perspective, an increase of 0.25 percent on a $1 million loan will result in an increase of $143 in the monthly payment. Rates will have to go up a lot more for the impact to show.
Low mortgage interest rates for the last five years or so have resulted in cheap financing for home purchases. Cheaper home loans result in more money to be spent on other things. Both buyers and sellers have benefited.
The increase will not dampen the vigorous San Francisco real estate market, where we have multiple buyers competing for too few homes. As long as employment stays strong and the supply of houses remains tight, we will not see a big impact with slight increases in the Fed rate.
John Solaegui
Paragon Real Estate Group
(415) 738-7232
[email protected]
