As interest rates rise, a local builder considers the cause & effect on housing market

Ten years ago, the Federal Reserve responded to the economic downturn by pushing interest rates to record low levels. Those very low interest rates helped the housing market stay alive by making it cheaper to own a home. Now that the economy is up and running again, the Fed has announced its first rate hike of 2017, while hinting at additional increases to come. This has some people wondering what effect it will have on America’s housing market. As Bob Meyer, president of Bob Meyer Communities, notes, “People seem to be gaining confidence in the marketplace. Traffic and sales have both been improving and continue to climb with no signs of slowing down.”

For home builders, the rate hike shouldn’t be a problem. Mr. Meyer states, “Most Americans buy homes based on the monthly payments they can afford. Buyers who purchase now will protect their monthly income and expenses long term by taking advantage of the historically low rates. It is a great time to buy.”

In case you’re wondering if there’s really a sense of urgency, the answer is absolutely! A 1% rate increase can add up to big bucks over the term of a 30-year mortgage. For example, a $519,000 mortgage amount at 4.5% interest over a 30-year term costs $2,634 per month. At 5.5% it costs $2,951 per month. Do the math!


With slow but steady economic activity being seen locally and nationally, every indication is that rates will be rising again in the near future. “The rates have been historically low for a longer period of time then I have ever witnessed in my 40 years of business,” recalls Mr. Meyer. “I remember rates at 18-20% during the Carter Administration!” But based on his experience, Mr. Meyer anticipates interest rates “increasing slowly at 1/2 to 1% annually for a few years.”

So, bottom line, would Mr. Meyer recommend pulling the trigger on buying a new home? “I would say if you have the down payment monies necessary, and feel comfortable that you will be staying three or more years in this area, now would be a good time to buy.”

And what about the effect of Millennials on the local housing market? “It is unfortunate that more Millennials can’t take advantage of the cost of mortgage money at this time due to the lack of necessary down payment or student loans,” Mr. Meyer says. “If they could solve those problems, it would be wiser for those who are renting or living with Mom and Dad to purchase now while rates are still low.”

The Millennial influence is definitely causing home builders to reconsider or explore new venues in real estate. For instance, “we are getting involved in apartments,” reveals Mr. Meyer. “The fact is that many Millennials are not in a position to purchase at this time because of their student loans. They can’t put away the savings necessary to get a down payment. And the debt from student loans will cause issues with further debt like mortgages. Therefore, they will be in the rental arena longer then past generations.”

Take it from a home building expert like Bob Meyer, if you can swing it, now is definitely a great time to buy a home.