What do rising interest rates mean for the DC housing market?

While the thought of a looming rate hike by the Fed may scare some buyers and sellers, local lenders are working to settle any nerves by offering perspective on the situation.

The feds are scheduled to meet March 14-15 and will discuss the possibility of raising the historically low interest rates. This news has caused some local buyers and sellers to become nervous, wondering how this rate hike could affect the DC housing market.

Adding to the fear, Business Insider named DC one of the top 13 markets that could potentially be affected by rising interest rates.

But is there reason for buyers or sellers to worry?

“There’s no reason to panic,” Jennifer Grillo, senior loan officer at George Mason Mortgage, says. “It’s just the initial shock of an increase that often freaks people out. Somebody who was able to qualify at a 4 percent rate can generally still buy a house at 4.5 percent rate.”

For example, the average monthly payment on a $500,000 mortgage at a 4 percent interest rate is $2,387. If that number jumps to 4.5%, the monthly payment increases to $2,533, indicating a monthly difference of $146.

The Fed takes into account a variety of factors including economic growth, inflation and the unemployment rate when determining if they should increase rates and by how much. With the current rates historically low at around 4.25 percent, and the economy appearing strong, feds have hinted that a slight rate hike is likely to come following the mid-March meeting.

But Grillo notes that despite what many think, the Fed doesn’t actually control mortgage rates. Mortgage rates are determined by the price of mortgage-backed securities (MBS), a security sold via Wall Street.

“As a rule, when the Fed’s post-meeting press release is generally positive on the U.S. economy, mortgage rates tend to rise,” Grillo said. “Conversely, when the Fed is generally negative with its outlook, mortgage rates tend to fall.”

So how will this affect the DC real estate market?

Grillo suspects that with a rising rate environment, more people will hold off on selling, which could compound the inventory problem that DC is already experiencing. Those with equity in their houses will be better positioned to handle a monthly payment adjustment, adding to a seller’s benefits.

The bottom line: Grillo feels “the worst is over” following the post-election nervousness among markets.

Interested in learning more about the home buying process? Contact Marian M. Rosaaen with The Marsten Group to get a head start on buying or selling a home.