Interest rates are on the rise. What does this imply for California’s housing, auto, and credit prices?

Interest rates on automobiles, houses, credit cards and anything else that needs borrowing money are likely to creep up. Wednesday, the Federal Reserve increased its benchmark interest rate by a quarter of a percentage point, the first hike since 2018 view ipass.

Additionally, it indicated that six further rises would occur this year and three more in 2023. Consumers’ reactions are likely to be slow and possibly imperceptible at first. Lenders often include projected increases in loans, and Wednesday’s hike is not significant. Gokce Soydemir, a Foster Farms endowed professor of business economics at California State University, Stanislaus, recommends customers take the following immediate actions to mitigate the impact of future increases:

  • Change from variable to fixed-rate borrowing.
  • Refinance your mortgage while interest rates are low.
  • Utilize 0% credit cards.
  • If possible, pay off credit card debt.

The most significant potential effect is on housing since interest rate fluctuations often result in the most considerable dollar expenses and the commitment typically lasts longer than other loans.

According to Jordan Levine, vice president, and senior economist for the California Association of Realtors, the average 30-year mortgage rate in California — at 3.85 percent — is expected to grow to 4.2 percent by the end of the year.

With a predicted median existing house price in California of $827,700, a buyer who puts 20% down would pay a monthly mortgage of $4,352 at 3.85 percent. That sum would increase to $4,481 at 4.2 percent.

INTEREST RATES INCREASE

The Federal Reserve is under pressure to rein down inflation, which reached a 40-year high last month. Increased interest rates often result in lower pricing, as consumers become less willing to borrow and spend.

The Federal Reserve set its target federal funds rate, which determines interest rate trends, at 0.25 to 0.50 percent on Wednesday. The rate has been ground zero for the last two years, as the Fed has attempted to keep the economy healthy amid the COVID-19 epidemic.

With six further hikes on the horizon — for more than the Fed predicted at the end of last year — the rate is forecast to reach about 2% by December.

The Fed defended its actions: “Russia’s invasion of Ukraine is wreaking havoc on human and economic life.” The economic consequences for the United States are primarily unpredictable, although, in the short term, the invasion and associated events are expected to increase inflation and impact economic activity.

California’s housing market has already suffered the effects of rising rates, as lenders often included projected hikes into their charges.

“The Fed’s rate move may not imply a major increase in mortgage rates. Indeed, this new rate rise may have already been included in mortgage rates,” said Jacob Channel, senior economic analyst at LendingTree’s online lending marketplace.

According to Raul Park, the average interest rate on a 30-year fixed-rate mortgage was 3.76 percent in February, up from 2.81 percent a year earlier. Last month, the average rate on a five-year adjustable mortgage was 2.87 percent, up from 2.83 percent in February 2021.

HOUSE BUYING

The California Association of Realtors reported a decline in house sales compared to the previous year, exceptionally high.

Sales were down 4.5 percent from January and 8.2 percent from a year earlier last month.

“Demand for houses remains robust in California, and prices continue to grow in a competitive market climate,” Levine said. “However, recent challenges make it doubtful that we will sustain the pace of sales experienced in 2021.”

Realtors blamed the slowdown on rising interest rates and the uncertainty caused by Russia’s invasion of Ukraine. Consumer confidence has been eroded due to these events, which the most considerable inflation has compounded in 40 years.

The Realtors’ monthly Consumer Housing Sentiment Index and the percentage of customers who thought it was an excellent time to purchase fell significantly last month.

The good news is that one in four customers remain optimistic that finding a house will get more straightforward over the coming 12 months.

However, customers may want to monitor such rates.

“Without significant delays caused by the invasion of Ukraine, the introduction of a new COVID variation, or some other unanticipated event, rates are set to continue rising for the remainder of the year,” he added.

He anticipated that mortgage rates would reach 4% by year’s end and that 4.5 percent “may not be altogether out of the question.”

ADVICE ON CREDIT CARDS

Consumers may want to consider repaying or refinancing other debts.

“Credit card rates and lines of credit will almost certainly increase in response to the second or third Fed rate hike.

As a result, although there will be no shocks, consumers will feel the effects of the Fed’s rate hike,” said Mark Schniepp, director of the California Economic Forecast in Santa Barbara.

Matt Schulz, the chief credit analyst at LendingTree, offers advice: Apply for a 0% balance transfer credit card or a low-interest personal loan, and meet with a credit counselor.

“You may even contact your credit card provider and request a reduced APR or fee waiver. You’d be surprised how often that works,” Schulz said.

Mary I. Bruner