Among the many news headlines this week, one that has stood out was the Federal Reserve’s decision to raise the short term benchmark rate by .25 basis points with an indication of gradual future hikes.
So, what does this mean to the consumer, and to the overall housing market and conditions?
Initially, the raise of rate will directly affect short term and adjustable rate loans or credit cards with an eventual effect on long term rates in the near future.
So, if rates rise, what does that mean for the consumer?
With an increase of interest rate, a buyer’s purchasing power is directly impacted because the interest rate dictates your monthly payments. In relation to housing costs VS interest rates, a quick way to remember is that with every 1% increase in rates, the buyer’s affordability drops by 10%.
If buyer’s purchasing power goes down, does that mean that values will follow?
Historical data will show that as rates rise so do values, the chart below outlines this information. In addition to historical data, geographical details are an important figure as well. Santa Cruz County is located in a highly desirable area for attraction reasons ( ocean, redwoods, parks, agriculture, etc) as well as proximity to the Silicon Valley ( an ever growing job market). Meaning, values could likely remain simply due to the maintained demand.