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Should you put off buying property if interest rates rise?

Millions of prospective homebuyers plan to flee the property market if we see interest rates rise in December 2016

It’s the worst possible timing for many American families if the Federal Reserve lifts the Federal Funds Rate when it meets on December 13-14, 2016. With just days left before Christmas, Chanukah and the whole holiday season, a rate rise could put a dampener on the the festive spirit.

A recent survey commissioned by finder.com and conducted by global research provider pureprofile, found that 55 percent of Americans – or 136.30 million people – are planning to hit the property market in the near future. However, three in five prospective homeowners (60 percent) say they will hold off hitting the market if rates rise this month. That’s a whopping 81.78 million Americans.

Rising rates and the US economy

  • 55% or 136.30 million Americans plan to buy property in the near future
  • 60% of which, or 81.78 million people, will hold off buying if interest rates rise in December 2016
  • Those who still live at home with parents are more likely to prolong moving out and buying property if rates rise, compared to those currently renting or own a home
  • Women are more scared of buying property if rates rise than men
  • Those who earn more income are less deterred by rising rates

It’s widely predicted that the Federal Reserve will increase the Federal Funds Rate next month, with CME group currently forecasting a 100% chance of a 25 basis point rise. Other sources also reporting a likely hike, with the Wall Street Journal’s Economic Forecasting Survey found 54 of the 57 economists surveyed in October (95%) predicting a rate rise of 24 basis points.

The last time the Federal Funds Rate increased was in December 2015, which moved by 25 basis points.

Further findings below:

  • Out of those who are planning to buy property in the near future, adults who still live at home with their parents are most likely to hold off buying if interest rates were to climb this December, with 68% saying they’d wait, compared to 57% of renters and 51% for those who already own a home.
  • Females are more deterred than men to purchase property in the wake of a rate rise, with 61% saying they’d hold off as oppose to 57% for men.
  • Baby Boomers are least likely to put off purchasing a property if the Federal Reserve were to lift interest rates, with 44% stating they would not hold off.
  • While Baby Boomers are least likely to hesitate if rates are to rise, 32% of Baby Boomers don’t plan on buying a home at all, compared to 13% of Gen-X and 6% of Gen-Y.
  • 58% of parents surveyed said that they’d press pause on purchasing a property if rates were to rise.
  • Unsurprisingly, those who earn more money are less deterred by rising interest rates. 68% of Americans who earn up to $50,000 will hold off buying a home if rates rise, while 58% of those earning between $50,000 and $100,000 will postpone, and just 40% of those earning over $100,000 will put off buying a home.
  • 55% of Americans surveyed are planning to buy a home in the near future
    • 12% in the next 12 months
    • 12% in the next 1-2 years
    • 15% in the next 2-5 years
    • 17% plan to in the future, but not sure when
  • After the birth of a third child, parents responded that they became consecutively less inclined to purchase a home with each consecutive child they had.
  • Although 39% of both men and women equally own their home, more men still live at home compared to their female counterparts (26% compared to 19%)
  • Those living at home with family are most likely to be planning to buy a home in the next 12 months (16%), compared to those renting (15%) and those who already own property (6%).
Michelle Hutchison
Money Expert at finder.com, Michelle Hutchison, believes a rate rise could impact the property market substantially.“If rates are to rise next month, we could see a significant impact on the property market. Our research has shown that over 81 million Americans will hold off buying if the Federal Funds Rate jumps 25 basis points. Most of these people are looking to enter the property market for the first time.“This hesitancy will result in less competition and make it more difficult to sell if you’re planning to put your home on the market. Investing is a risk that can be difficult to get right, anyone with existing assets should be prepared to to tackle some of the tough times that ride with the good.

“On the flip side however, opportunity will arise for those wanting to buy, as it looks like a rate rise will scare many home buyers away from the market.”

Mrs Hutchison warns current homeowners to practice caution when it comes to budgeting, as higher repayments could hit during the most expensive period of the year for many American households.

Tips to help you through a rate rise

  • If you are already paying off a mortgage, consider transferring from variable repayments to fixed, that way you can lock in repayments at the current rate and avoid a potential hike. Talk to your bank and confirm that the fees involved outweigh the benefits of a transferral.
  • During the holiday period, we generally see a steep spike in consumers taking out personal loans and making purchases on credit. Keep in mind that repayments on these types of loans can also be affected by a rate rise if you have a variable interest rate. Whilst assistance over the most expensive period of the year is welcomed for many households, ensure that you’re confident you can meet repayments if greeted with a rate hike.
  • Come the New Year, if you’re struggling to meet repayments after a hike has hit and the holiday period has died down, consider a balance transfer credit card. A balance transfer card will allow you to combine your outstanding debt onto one card, and repay it at a lower rate for a certain period of time.
  • Don’t rely on interest rates as the be all and end all for investing in property. Property values fluctuate, depending on a variety of factors. Engage with professionals; buyer agents, banks, real estate companies and brokers to widen your knowledge and increase your chances of property-success.

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