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Impact of Fed Rate Increase on Mortgage Rates: Ventura County

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A frequent question from both buyers and sellers alike has been: “What about the Fed’s increase of interest rates?” “How is it affecting real estate in Ventura County?” In short: It hasn’t and likely won’t.

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History and What the Fed Funds Rate Is:

The Fed Funds Rate was last changed December 16th of 2008 to 0.00-0.25%. On the 7th anniversary (plus one day) of that date, the Fed raised the Fed Funds Rate to a range of 0.25-0.50%. The rate itself is a bit mysterious in usage. In short, banks — with customers’ deposits on hand — lend money to other banks for overnight terms at this rate. For example, if Chase lends BofA $100,000,000 overnight at 0.14% for that day, BofA would pay $388.88 in interest for that night. The rate range is just an average. The Fed also requires bank to maintain 10% of their deposits (e.g., people’s checkings and savings accounts) available for withdrawal. The rest, or sometimes even more, is invested by the bank (to make money with deposits). Banks must keep that 10% on hand by the close of business, so they borrow from one another to meet this requirement.Picture of Ocean by Crown Plaza

Mortgage Rates:

As much as certain facts on Zillow can be inaccurate, I use the Zillow Mortgage calculator app on a daily basis to tract interest rates. In fact, it’s one of the first things I check in the morning when I wake up. The app can be viewed on their Mortgage App or at Zillow’s Mortgage-Rate Webpage.

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Mobile App


Anyway, the rate-increase was announced on December 17th. While we realized a tiny bump in rates after the announcement, rates have fallen significantly since then. This is in part due to the carnage in the Chinese and, subsequently, U.S. & Europe stock markets. However, the main point is to say that when the change was announced, rates barely went up for real estate borrowers. When chaos ensued in stocks, the mortgage rates dropped to pre-announcement levels (around 3.72% upon announcement, now just below).
Picture of Mortgage-Rate Chart

Implication:

The Fed’s rate increase was mostly priced into the mortgage-interest rates we’ve already had. That is why did we did not see a significant rise or even proportional rise in rates when the Fed raised rates; the market already saw it coming and adjusted prices long in advance (likely mid 2012 when rates jumped after an extended low). What was not foreseen was the fact that the Fed’s pace was suggested to be slower/more gradual than previously estimated. That also tempered the effect of the increase as the market made an additional adjustment.

Caveat on Zillow Rates:

The rate on the Zillow site is an average of 30-year, fixed-rate loans for borrowers with 740+ credit scores in ideal situations throughout the states. Lower credit, condo vs house, co-borrowers, manufactured home vs stick-built home, & etc. will all add “rate riders” or rate increases to a home loan. Therefore, I generally use 0.50% over the Zillow rate to calculate payments with clients.

Bottom line for Real Estate Sellers and Buyers:

Post written by Realtor at “Meet Kevin“, the amazing real estate agent and brokerage serving Ventura County, including Camarillo, Ventura, Oxnard, & beyond. Writing for home buyers, sellers, investors, and anyone with an interest in real estate. Kevin thanks you for reading.