Fed raises rates again, what does that mean?

So the new Fed Chairman Ben Bernanke did little earlier this week to veer from the path that former Chairman Alan Greenspan set for our country's fiscal policy. This continued tightening with yet another quarter point increase in the short term federal funds discount rate makes 15 straight increases since June 2004. Although the stock market could use a break from this current tightening cycle, I guess the slightly higher than expected revisions on last years core consumer price index numbers that came out today justified the Fed's actions. Not that inflation is a serious problem yet, but the Fed seems to be taking every precaution to check it before it really starts to rear its ugly head.

But what does that mean for you and me and in particular to real estate? It means that our short term, interest rate sensitive loans will be impacted. The HELOC or home equity line of credit products, based on this Fed controlled prime rate will be impacted the most as we will see yet another rise in rates and thus in our payments on our very next invoice. Longer term 30 year fixed or even ten year adjustable loans are still competitive, though creeping up. These loans are tied more closely to the 10 year treasury bond yields, as those products vie for the same investment dollar as mortgage loans or mortgage backed securities. Although the discount rate does affect bond prices and thus yields, the relationship is less direct than on loans based on the discount rate. So basically it's more of a wait and see.

The upshot is that because we are still in a general rising interest rate environment, you should keep one eye on the real estate market for something you really like and the other eye on the mortgage market for a good rate. When those two things come together, take advantage of the situation and look for a product that will provide you that rate for as long as you think you'll be in that home for. Because we have seen and will likely continue to see a slow down in the real estate market, not a bubble burst, but a slow down, it is more important than ever to identify the right property for your needs. Mistakes or regrets will not be bailed out by appreciation in the short term, like they might have been the past few years. Buy what you want and make sure you can hold on to it in case there is a short term correction. Taking the extra precautions now will help you weather any storm and will allow you to come out ahead in the future.

Warm Housing Market Confusing to Buyers and Sellers

While the current real estate market here on the San Francisco Peninsula can not be considered nearly as hot as it was for the past few years, it is not as cold as many had feared either. As we move from the seasonally slow winter season, as a whole we are seeing a pick up in activity. Listings that had seen little interest in the holiday months have been sold or gone pending and slowly more inventory is coming online.

Unlike many other markets here on the West Coast like Orange County or Las Vegas, our inventory figures are not making headlines and at all time highs. As a matter of fact, Realtors are looking for more properties to sell. For Buyer's Agents it's still been difficult because although the days of multiple offers and well over asking price bids seem to now be in the past, the new challenge is that there isn't enough out there for our buyers to look at.

As for Listing Agents and Sellers, the listing prices seem to be remaining healthy and they understand that though it may take a bit longer to sell, they can still get or very nearly get their price if they are patient. As the market keeps on improving through the Spring to the busier Summer months, this patience will likely be rewarded.

The notion that some have about the imminent bursting of the real estate bubble seem at least for the foreseeable future to be unfounded. We are still getting the daily phone calls inquiring about our listed properties and receiving solid traffic at our weekend open houses. However, there does seem to be a little more song and dance since rising interest rate fears seem to have subsided for the time being. Buyers believe that since they have already absorbed that additional 50 basis points or so since last summer and that chances are they may only be looking at 25 more if they waited, they can afford to hold out for THE property (or at least closer to it), instead of any property as had been happening up through last summer.

But with real estate for the long term, the probability is overwhelmingly in our favor that regardless of what happens in the near term, that we will end up ahead. And most importantly and a point not to be forgotten, the house you are looking to purchase will be your home and taking a page from Mastercard: Mortgage Payment - $xyz, Property Tax - $abc, Memories you will make with your family in your new home - $Priceless!!

So the upshot is that while there certainly is a measure of risk in buying into this market (as there is in any investment, financial or otherwise), just don't let this risk lead you. It is a factor and should be a factor, but remember that it is merely one data point that should be considered along side everything else. And sellers, prices are still strong and buyers are just waiting for their dream home or even a home they can build their dreams in to come on the market, and they're waiting for you.

Welcome!!

Welcome to the Official Blog for Quintessential Realty. We will be posting our stories from the field and periodic analysis of the real estate market as whole and the Bay Area specifically. Should there be any particular topics you would like us to cover or questions you have for us to answer, please do not hesitate to drop us a line. We are here for you and look forward to hearing from you!

The Quintessential Realty Team