track because consumers have gotten used to interest rates below 4 percent in the past few years.
Zillow chief economist Svenja Gudell said last week that rate hikes could be a good thing in San Diego where home prices have increased 8.9 percent in the last 12 months.
“I wouldn't be surprised if, overall, we start to see more of a cool down,” Gudell said, “that I think is actually a good thing for a lot of these coastal markets.”
Housing is still hard to come by in San Diego County. Roughly 7,000 homes were for sale in November, about 1,000 less than average for the last five years.
Rising interest rates make it more expensive to borrow and can limit the amount of money a prospective homeowner needs for a purchase.
Also, the cost of other things, like credit card and car loans payments goes up for people trying to save money for a down payment.
“For every 1 percent increase in interest rates, that decreases people’s purchasing power by about 10 percent” Gardner said. “To borrow $500,000 today, say interest rates go up by 1 percent, you can afford to borrow $450,000. We can’t just keep borrowing the same amount.”
Rich Toscano, the author of the San Diego real estate blog Professor Piggington’s Econo-Almanac, said interest rates are low enough that it can be difficult to predict what will happen.
“From a housing perspective, that is the kind of noise people should really ignore,” he said. “I think they are better served focusing on valuations. How much are you paying for what you’re getting? Why are the valuations the way they are? And ignoring that short-term noise.”
Andrew Ratner, senior vice president of wealth management at UBS Financial Services, expects the Fed to raise interest rates a quarter-percentage point four more times next year and another four in 2017.
“It’s a historic anomaly to have interest rates at 0 percent,” he said. “They did everything but send up the flares that they really wanted to get back to normalization.”
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By Phillip Molnar | Dec. 18, 2015
Posted on sandiegouniontribune.com
What Does the Fed Decision Mean for Real Estate?