As expected, the Federal Reserve raised a key U.S. interest rate by a quarter-percent Tuesday at its first meeting under its new chief Ben Bernanke.
The announcement, carried in business news reports across the county, appeared to make little difference to Pleasanton Realtors and mortgage brokers who had been anticipating the increase all along.
It was the 15th straight time the Feds have lifted interest rates by a quarter percentage point, raising it to 4.75 percent, the highest level since April 2001.
“Of course rising interest rates aren’t the best news, but they really haven’t affected our business in the Tri-Valley,” said Lenore Colarusso, a mortgage consultant with the Diablo Funding Group. “None of the lenders I use raised their rates this week, although you may see an increase April 1.”
Colarusso said she doesn’t talk interest rates with most of her customers, who have checked out rates in the Internet before seeing her. The rise in home mortgage rates, which are now just under 7 percent, are still low compared to just a few years ago that they are not an obstacle to buying or refinancing.
“There are so many different products out there when it comes to finding a mortgage loan that rates just aren’t all that important where they are now,” she said. “The average Californians doesn’t keep a loan longer than four years anyhow, so the rates they end up with are for a short term. The old, traditional 30-year-fixed mortgages have gone away. I don’t think anyone in my office has done any of those.”
Colarusso said she talks “historical” rates when consulting with customers, pointing out that rates once were 18 percent and higher in the 1970s and 1980s. She doesn’t think those kinds of rates will come back anymore than Jimmy Carter will be re-elected president. That’s why she recommends five- or seven-year fixed-rate loans that convert into an adjustable rate loan when they mature.
“I don’t have a crystal ball, but the trend line over recent years shows that rates rise and fall often enough so that there are always opportunities to refinance your loan at a lower rate,” she added.
In a statement made following its action, the Federal Reserve said that further rate increases may be needed, suggesting, according to Washington reports, that it might be comfortable with financial market expectations for rates climbing another quarter-percent to 5 percent in the coming months.
Tuesday’s increase was the first since Bernanke took over as chairman of the central bank last month, succeeding Alan Greenspan, who retired after nearly 18-1.2 years at the helm of the bank. Fed watchers said that the Reserve’s explanation of the increase indicates that the Fed will raises rates at least one more time in May, moving the rate to 5 percent.
CNN Money quoted Ray Stone of Stone & McCarthy Research Associates as suggesting that if the economy shows signs of cooling off, the Fed may postpone or cancel its expected quarter-percent increase in May. In any case, “we don’t think rates will go beyond 5 percent,” he said.
Colarusso said that even with the rate increases, homes here are still appreciating.
“While appreciation has slowed down somewhat, it certainly hasn’t stopped, meaning that a house is still a good investment even with the higher rates,” she said. “The main effect these higher rates are having is on first-time home buyers, who may not qualify or have enough money for the down payment and monthly costs.”
Younger buyers are more likely to take a chance on five-year loans with an adjustable rate loan (ARM) to follow. Older buyers are more afraid of continued rate increases, which would mean that when their short-term fixed rate loan expires, they could be faced with much higher interest rates that they could find hard to pay.
“But even for these people, I can usually shop around and find a 10-year-fixed, sometimes at even better rates than the shorter fixed-rate loans, which gives buyers more comfort in signing on,” Colarusso said.
One thing is sure, she added. If homeowners have a lot of equity in their homes because of the tremendous appreciation over the past several years, they should consider refinancing and put that equity to god use.
“I ran into a gentleman in his 70s at a church meeting the other night who took pride in telling me that he long ago had paid off his home in just 17-1/2 years.
“So all these years, he’s been sitting in the house and not using the equity which could have added to his retirement income,” she said. “It’s sad.”
Colarusso said she and Diablo Funding conduct free courses to help homeowners and investors understand their financial opportunities in real estate. Information on those seminars can be obtained on the Web at www.ConferWithUs.com or by contacting Colarusso at lenorecd2@yahoo.com.
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