Your home: Only two months left until the rate hike

With the Federal Open Market Committee scheduled to meet on Sept. 16 and 17, they seem to be poised to announce an increase in the federal funds rate. This would be the first interest rate increase by the Fed in nine years. An increase has been a long time coming. It feels like the real estate community has been anticipating an increase for years now. Not because of any facts that support an increase. Simply because we all could not believe that rates could stay so low for so long. But they have. Until now.

At the June meeting, the committee confirmed that they are on track to raise rates based on the improving economy. Janet Yellen, the Federal Reserve Chair, is maintaining her mysterious position as it pertains to when exactly rates will increase. “It would be wrong if we were to provide you a road map,” Yellen said following the June meeting.

I was curious what the word on the street was in the lending world, so I had a conversation with Mike Miles of Fountain Mortgage here in Prairie Village. I asked Mike if his sources were telling him that rates are going up this year. He said, “It is well known that the Fed will raise rates in 2015. Once the increase is announced, the bump in rates that we feel could be smaller or larger depending upon how individuals and institutions respond to the news and to what degree they react.”

We discussed Greece and other international turmoil and if he felt that could delay an increase in rates. “I would choose to base my decisions on information from domestic sources. Waiting to see if economic turmoil overseas could have an effect on a rate increase is a huge risk.”

So let’s back into this for a minute. If rates are going to increase in mid-September and here it is mid-July, then we only have two more months of historically low interest rates. That is not much time. With the average real estate transaction taking approximately 45 days from contract to closing day, there is not much time to find a home first.

And what if you need to sell your current home first? You have even less time. If you need to sell before you buy, you are on borrowed time at this point. Not only might you have to pay a higher interest rate when you turn around and purchase a home, you may also have the size of your buyer pool affected by an increase in interest rates. Historically when rates increase, it can cause a stall in the market. Some buyers, who are currently renting, may choose to stay in their rental as opposed to purchasing a home. This stall cannot only have an affect on the size of your buyer pool, it can also cause downward pressure on pricing. Talk about a one-two punch. Not only might you have to pay a higher interest rate on your purchase, but you may have to sell for less as well.

When asked what interest rates might look like in the foreseeable future, Miles had this to share from the Mortgage Bankers Association. Here is their forecast for the rest of 2015 and the first half of 2016.

30 year fixed mortgages
Q3 in 2015 = 4.1%
Q4 in 2015 = 4.4%
Q1 in 2016 = 4.6%
Q2 in 2016 = 4.8%

The moral of the story is that whether you are considering a home purchase in the near future or perhaps a refinance, now is the time to act. Based on the MBA’s predictions, almost 10 percent of your buying power could be eroded by the second quarter of 2016. Don’t wait. Act now.

Your home: 5 things your first home teaches you

As I write this, I am celebrating ten years of marriage to my wonderful wife and business partners, Leah. More than once this week we have discussed how time has flown by, and how we have changed through the years and, most importantly, what we have learned from the last ten years. While discussing our early married life, our first home in Prairie Village has come up several times.

We loved that house. We put a ton of sweat equity into that home, as do most first time home owners. That house taught us a lot as well. Leah and I like to say that, “Your first home is like your first major relationship. It teaches you what you like and what you want to do differently next time around.”

Here are five things that our first home taught us:

  • 1. Home improvement projects will take twice as long as you thought. And in most cases, they will be more expensive. It is easy to underestimate the time it takes to complete almost any project. Err on the side of caution, and at least estimate 1.5 times what that you originally thought should be set aside for completion.
  • 2. A home requires maintenance at all times. Period. There will never be a time when something in your home does not require attention. Whether it is a repair or simple deferred maintenance like cleaning your gutters or trimming your trees seasonally.
  • 3. You learn where you spend most of your time while at home. For some, a living room or a family room is the most important. Or perhaps a spacious master bedroom. For our family, the most important room is the kitchen. Leah and I cook a lot and our first home taught us that we need a highly functional kitchen. Our current home has an older kitchen, but it is a very efficient space.
  • 4. Location, location, location. Our first home was in PV right across from the Prairie Village pool and the police station. This was a great location for us one Cinco de Mayo when a former neighbor of ours drove his car into our front yard and within 30 seconds there were seven police cars there to assist us. Yet as the years went by, it became increasingly clear to us that we wanted to be within walking distance to our elementary school. I grew up walking to school and I wanted that for my boys. It might surprise you, but many home buyers look for a home either conciously or subconciously like the home or neighborhood in which they were raised. It all comes full circle it seems.
  • 5. It’s not a house, it’s a home. This is why I love my job. We get the opportunity to see our clients move into perhaps their first home, or maybe their second or third. Whichever it may be, we get to hand them the key to start a new chapter in their lives, and it is very personal. And we don’t take this honor for granted. It is a big deal to them and us.

I don’t look back on my first home and think about the windows that we changed out, or all of the hours that Leah and I spend painting every single square inch of the interior of that home (although I still sound a little bitter.) Instead, I think about how proud we were when we closed on our first home. Or how terrrified I was as I drove home from the hospital with our first son, Ben. Or how for some reason I installed about twenty smoke detectors in our home before he was born. I must have been nesting. I often think about our early Christmases in the house with both boys. They were magical to say the least.

We can learn a lot from our first home, and the second and third for that matter. Our home becomes a part of our story through the years and is constantly teaching us something. I am fortunate that I am reminded of this fact as I drive down Mission Road every day of the week and I glance over east of Mission at 77th St and see good ole 7701 Howe Drive. That home was a good teacher for nine years of my life and for that I am grateful.