What effect will rate hike have on Phoenix Real Estate

 Phoenix Real Estate, how will it be effected by Fed Rate Hike to

Could the Phoenix real estate market be in danger of a big shake up? So most of you probably heard by now that The Fed raised rates by .25% yesterday, the first rate hike in almost a decade. But what does that mean to the Phoenix real estate market?

In this edition of #AskphxREguy, we attempt to answer that the best we can.

Yes The Fed raised rates by .25% yesterday, but it is unlikely to have much of an impact on the Phoenix real estate market short term. But we need to be aware of the full story and what is coming down the road.

As Michael Orr of the Cromford Report said, (sorry, this is a subscription based service only), while there is unlikely much impact, any impact will be in an upward movement in mortgage rates, not a downward movement.

If we look back a decade we will see the Federal funds rate went up 4% from 2004 to 2006, but the actual mortgage rates during those times only went up about 1%. (Thanks John Wake for helping us geek out). So you can see there is not always a direct percent-for-percent correlation between the fund rate and mortgage rates.

But one thing we do need to watch out for is what The Fed has signaled is likely coming in the next year. The Fed has signaled that they will likely look at rate increases over the next year. Many experts expect a gradual increase, so likely another .25% every quarter for the next year. So while a 1/4 may not seem like much, when you look at the funds rate being up by as much as 1.25% over the next year, then things can add up.

So what would happen to the Phoenix real estate market if rates were to jump 1/4% because of the Fed rate increase.

The Phoenix real estate market is pretty stable right now. While there is still a very slight advantage overall to the Seller, it is very close to a balanced market. Prices still continue to grow upward in a very controlled and sustainable manner.

If you were currently qualified to take on a $300,000 mortgage, what would happen if rates jumped .25%. The house you can qualify for, keeping the same payment, is not longer $300k, it would drop closer to $290,000. Maybe not a huge change, but it could make the difference between you getting the house you want, in the neighborhood you want.

Now if you do this a few times over the next year, a mortgage rate change of .5% could end up really making a difference in the house you buy.

While we do not believe the rate increase will change the Phoenix real estate market that much in the short term, we do have some concern over what could happen to the market in the next year. So if you are thinking about buying any time soon, you may want to start thinking about it sooner rather than later.