What Will Rising Interest Rates Mean For Homeownership?

What Will Rising Interest Rates Mean For Homeownership?If you’ve taken advantage of the recent historically low interest rates with an adjustable-rate mortgage (ARM) or home equity line of credit (HELOC), you may be concerned about reports that the Fed plans to raise interest rates as soon as mid-March. On the other end of the spectrum, retirees and others who are conservatively invested in assets tied to the interest rate (like bonds and CDs) may be rejoicing at the prediction of frequent rate hikes over the next few years.

What impact can higher interest rates, combined with economic changes proposed by the Trump administration, have on homeownership throughout the U.S.? Read on to learn more about some of the U.S. economic changes predicted to come before 2020.

What impending economic factors can impact homeownership rates?

  • Rising interest rates
    Rumors have swirled around the Federal Reserve’s plan to raise interest rates for years. Recently as a few weeks ago few believed increased rates were coming, however many in-the-know are now predicting as many as three increases by the Fed before the end of 2017. This can have a direct impact on those whose loans are tied to the federal interest rate.  On a macro level, it has the potential to drive down home prices unless there’s a corresponding increase in median income (as the more a buyer pays in interest, the less he or she can afford to pay in principal, taxes, and insurance).
  • Investments in infrastructure
    President Trump has proposed to invest more than $1 trillion in U.S. infrastructure over his first term–repairing crumbling bridges, expanding interstate highways, and creating jobs in the process. This could potentially increase demand in previously isolated areas and drive up housing prices as billions of dollars are pumped into the economy.
  • Fewer housing regulations
    During his campaign, President Trump estimated that as much as 25 percent of the cost of a home is due to the amount of regulation in the purchase and sale process, promising to reduce this proportion to 2 percent. On the surface, this can seem like a great way to keep home prices stable even as interest rates rise; however, deregulation can always bring with it the risk of waste or abuse.

How can you take advantage of these changes?

Rising interest rates mean that ARMs, adjustable HELOCs, and other variable-rate loans are about to become more expensive. While this change won’t be instantaneous, moving toward fixed-rate loans while rates are still fairly low can provide the most insulation from increasing rates.

If you’re debating selling your current home, purchasing a new one, refinancing, or even delving into the world of investment real estate, you’ll want to do all you can to minimize your tax liability (and maximize any potential deductions). Whatever your plans, Klein Hall CPAs can help advise you. As a full-service CPA firm, we’re available for all your wealth planning, tax planning, and bookkeeping needs.