I fear that this might initially seem like a topic that is not interesting enough to hold many people’s ever shrinking attention spans, but there are a few principles that can be helpful for someone who is thinking about buying real estate with a loan related to the coming rise in interest rates. When the Federal Reserve keeps rates low (as they have for the last decade, to spur on economic growth/recovery) people tend to borrow more money, because it’s cheaper to borrow. Since people are able to borrow more they often find that prices rise faster because there are more people with more money burning a hole in their pocket. If you’ve been tracking real estate you will have surely noticed in most markets that prices have risen quite a bit over the last decade. And with people moving back into urban centers those prices have jumped more – while some rural markets have lagged behind.

So, maybe you are thinking about buying something sometime soon and you’re possibly afraid of overpaying, and/or having a rate that is higher than you want it to be? The historic average in recent decades on a mortgage interest rate is about 7%. So rates going over 5% is still relatively low. However, people are borrowing more money for homes that are larger (although that is trending down, particularly in urban areas), so people are still needing to figure out the balance of their own personal priorities. Coming up with a game plan can be somewhat complicated, but certain aspects of the search don’t have to be. Don’t be afraid to tell someone that you don’t know something, and ask for advice. Call your Realtor, and your lender to see what your options are if you think you might want to buy property. Making a plan is really in your best interest. This article might sound doom and gloom, but it doesn’t have to be entirely. Rates will rise, and things will change – so make a plan. Now go find a way to enjoy this day, and I hope you enjoy this article.


The Sting of Higher Rates – Steve Rattner

On MSNBC’s Morning Joe today, Steven Rattner discussed the implications of rising interest rates on would-be homeowners, the stock market, and federal borrowing. Interest rates are on the rise, causing pain for Americans seeking mortgages and contributing significantly to the recent swoon in the stock market. Over the past year, the average rate on new 30 year mortgages has risen by a full percentage point, from just over 4% to just over 5%. That puts the cost of a new mortgage at the highest rate since early 2011. The increase has been largely driven by a similar rise in rates on US Treasuries. As a result, the housing market has already begun to soften. Existing home sales have fallen 6.6% from November 2017 and the sales of new homes have fallen even faster, by 11.6%. New housing starts and homebuilder sentiment has similarly declined. Interest rates normally rise later in the recovery cycle but the recent increase has been unusually fast and is due, at least in part, to rising federal borrowing. In the past 12 months, the government borrowed just over $1 trillion of new funds, almost exactly double what it borrowed in the preceding 12 months. And that high level is projected to remain indefinitely. On top of that, the average interest rate that the government pays has risen substantially, from just over 2% during the previous several years to almost 2.4% at present. As a result of these two factors, the government’s interest costs have begun to rise and are projected to increase more steeply. While the government deficit has been rising, its interest expense has remained relatively stable (until now) because rates were low. But now, interest expense will become a bigger cost for the government than Medicaid in 2020 and by 2023, interest expense is projected to be higher than the entire cost of our military budget. (Fun fact: our federal interest expense is now larger than the entire GDP of Belgium.)

Steve Rattner is the Chairman and CEO of Willett Advisors LLC, which invests former New York Mayor Michael Bloomberg’s personal and philanthropic assets. He is the Economic Analyst for MSNBC’s Morning Joe and is a Contributing Writer for the Op-Ed page of The New York Times.