Big News on the Economic Front! rates are going to rise!

Happy Holidays!

I woke up this morning to check the New York times, and also my email.
Besides the general news, the Times published the article below, citing the Fed's c to raise interest rates for the first time since 2008. We have already seen slight raises ( 1/4% or so) over the past month, in the rates for thirty year mortgages, but this new decision will probably be the beginning of a trend.

http://www.nytimes.com/2015/12/17/business/economy/fed-interest-rates.html?&hp&action=cl ick&pgtype=Homepage&clickSource=story-heading&module=first-column-region&region=top-news&WT.nav=top-news

In 1982, when my older daughter was born, interest rates rose to 19%. As a result, real estate prices plummeted overnight. ( Some people were not aware that they had done so, but the immediate effect of the drastic rise in rates from12% to 19% was an effective drop in the price of homes by 25% or more.) I was already a top producer, having been in the business since 1978.

Thanks to my father, who had drummed in to my head that "you have to earn 3 times the monthly payment" to afford your mortgage, I quickly figured out that if my listings were to sell, we would have to reduce prices. Fortunately, my seller clients " got it" and we were aggressive in changing prices, so that was a great year for me and my clients. At that time we did not even have a multiple offer form; because my listings were priced so competitively we would receive multiple offers and I would have to type out the language needed to protect the seller from inadvertently selling to more than one party on onion skin paper with black carbon paper underneath it to make copies.

Oh yes, in those days,we had NO fax machines, no computers, no cell phones and no NCR paper. We did everything by hand, and notes and deeds of trust were typed at the title company. ( When interest rates dropped to 12% for fixed rate financing closes were delayed by days, because there was a back up in the secretarial pools typing thn notes and deeds! This is true!

I found a variable rate loan at Bank of America for a client buying a major estate which had a start rate at 12% and a cap of 19%. I wish I had the letter in which I told them that this was the best loan I could find and advised them to take it! ( They did and the house they bought then for $375,000 just sold for $2,000,000. )

So how does this affect you as a buyer or seller?  If you are buying and paying cash, it will strengthen your position as you will be competing with people whose borrowing ability may be affected. ( If you would like to contact me, I can show you how a rise in rates affects borrowing capacity). If you are a seller, be aware that unless your property appeals to the type of buyer who doesn't need to care about the cost of money, the price of the home you are selling may go down.

This is the reason that an aggressive marketing campaign that highlights the best features of your home to the most amount of people possible, is important to acheiving the highest possible price. For example, I recently participated in a negotiation for a home in rough condition in a very desirable neighborhood. ( The house needed a new roof, siding,  and about $200,000 worth of updating). Offers came in ranging from under asking to $70,000 over asking. The lowest offer involved FHA financing. The seller did not even respond to it. Between the conditions reguired by an appraiser in order for the FHA to make the loan and the risk for qualifying based on interest rates it was clear that the offer that could be cash would be the one to go with. Price mattered, but terms were even more important.

I am off to prepare for my client appreciation dinner. Just a reminder that every year at this time, I host a sit-down dinner at a local restaurant, for everyone who bought, sold or referred a client in the year before! I would be honored to have your referral and hope to invite you next year. In the meantime, please let me know if I can be of any help with your real estate needs.