What do you think about upcoming Fed interest rate hike?

[ysette9]

Time to pull out your crystal balls!

I keep hearing about everyone's speculations on when the Fed will increase interest rates and by how much. What are your thoughts on how that will impact mortgage rates and therefore the real estate market? I don't imagine any initial rate hikes will be significant, but it might have a psychological impacts on buyers. How do you think prices will react (or not)?

[waltworks]

My personal crystal ball says prices will keep rising, but only about as fast as inflation for a few years. They may even stagnate. I don't think the interest rates will have too big of an effect. That's just my random opinion, of course.

But demographics, man... all the crazy apartment building the last 5 years has been to house that huge cohort of 19-29 folks. They are going to be having kids and buying houses soon. If I was some huge company, I'd be finding a way to bet on price increases in desirable (ie walkable/urban) locations and stagnant rents in the next decade or so.

-W

[Bobberth]

My crystal ball says no Fed hikes for awhile.  A long while.

[Thedudeabides]

I should know better than to speculate, but...I'll take the bait.

Here are my 2 cents:

• Mortgage rates are impacted mostly by the long term bond market

• As long as things are bad/questionable in Europe, there will be demand for the dollar as a flight to safety. The higher demand for long term bonds will keep long term interest rates down

• As long as oil is down, the dollar will be strong. A strong dollar will attract foreign investment as a hedge against falling currency

• as long as there is a trade imbalance between the U.S. and China, there will be a high demand for US bonds. This will exert downward pressure on interest rates.

So I would speculate that long term interest rates will remain low for a long while.

[humblefi]

>> What are your thoughts on how that will impact mortgage rates and therefore the real estate market?

I like what Thedudeabides says....but I am not a financial industry person. Here is what I see in my HCOL area:
+ House prices are insane...and getting more insane in the last few years
+ Prices are not driven by salaried folks...no reasonable salary can drive prices that high.
+ Capital infusion is coming from real estate companies borrowing money at almost 0% interest directly from the govt and driving up the house prices by
   overbidding.
   Capital is also coming from out-of-country investors paying crazy money and boosting the prices.
   Capital infusion by people borrowing more due to low mortgage rates

The optimistic side of me says that if the interest rates go up, I hope to at least see a reduction in the capital infusion by real estate companies and by people borrowing more due to low rates. I am not sure if we can reduce the foreign capital infusion any time soon. But, the mortgage and real estate lobby benefits from keeping the rates low and boosting up the real estate bubble. So, the pessimistic side of me says that mortgage rates will remain low inspite of interest rates going up. Read about the Austrian Business Cycle and the notion of inflating bubbles.

I am conserving cash for the inevitable bubble pop...hoping to get the deal of my life and get closer to FI.

Hope that helps.

[sol]

I predict the tiniest of rate hikes, followed by brief market turmoil and maybe a six month or one year pause before they go any higher.  There's no reason rates have to rise as quickly as they have in the past.