Home buy­ers seek to beat Fed’s move

The like­li­hood of higher mort­gage rates spurs an ‘ur­gency in the mar­ket­place.’

Los Angeles Times - - MONDAY BUSINESS - By Jim Puz­zanghera and An­drew Khouri

In mov­ing from Lon­don at the be­gin­ning of the year, Rose-Linn Jensen would have pre­ferred to spend a year get­ting familiar with the Los An­ge­les area be­fore buy­ing a home.

But with a Fed­eral Re­serve in­ter­est rate in­crease loom­ing, she’s put in bids on four houses and a condo in the Stu­dio City area in hopes of land­ing a prop­erty be­fore mort­gage rates rise.

“If I wait, they might go up half a per­cent­age point, and that is go­ing to cost me an­other $50,000,” said Jensen, 45, of Sher­man Oaks, who works in fi­nance in the tele­vi­sion in­dus­try.

Higher mort­gage rates are likely to face con­sumers once cen­tral bank pol­i­cy­mak­ers raise the fed­eral funds rate for the first time since 2006. The rate has been near zero per­cent since late 2008.

“When the Fed raises short-term in­ter­est rates, they’re rais­ing the cost of money, and that im­pacts the cost of money to con­sumers, busi­nesses and gov­ern­ments alike,” said Greg McBride, chief fi­nan­cial an­a­lyst at Bankrate.com.

Mort­gage and other longterm rates al­ready have be­gun ris­ing in an­tic­i­pa­tion of a Fed rate in­crease, which could come as early as Wed­nes­day but is more likely later this year.

“Long-term rates are ef­fec­tively a se­ries of short­term in­ter­est rates,” McBride said. “If the tra­jec­tory of in­ter­est rates is ex­pected to change in years to come, long-term in­ter­est rates are go­ing to re­flect that.”

Other fac­tors also af­fect rates for mort­gages, bonds, cer­tifi­cates of de­posit and other fi­nan­cial prod­ucts. But the fed­eral funds rate is a key fac­tor be­cause it nor­mally ref lects broader eco­nomic trends.

As the Great Re­ces­sion be­gan, the Fed low­ered rates ag­gres­sively. The near-zero rate in place for nearly 6-1/2 years has hurt savers and those on fixed in­comes. In­ter­est on five-year CDs, for ex­am­ple, have been be­low 1% since 2012.

“We have a gen­er­a­tion of savers who will ac­tu­ally end up with a much smaller ag­gre­gate amount of sav­ings than they would have had if we had been in a nor­mal in­ter­est rate en­vi­ron­ment,” said David John, a top pol­icy ad­vi­sor at se­niors ad­vo­cacy group AARP.

A Fed rate in­crease will be wel­come news for savers, though it prob­a­bly will trig­ger a volatile pe­riod as in­vestors, fund man­agers and oth­ers in the fi­nan­cial in­dus­try ad­just af­ter years of nearzero rates, he said.

“If I were a re­tiree and I were sit­ting on a lump sum of cash, when the in­ter­est rates start go­ing up, that is the time to start putting at least a por­tion of it into some form of a fixed in­vest­ment,” John said.

But he sug­gested short­term moves at first, such as one-year CDs or bonds, be­cause ad­di­tional in­ter­est rate in­creases could fol­low.

Fed Chair­woman Janet L. Yellen said last month that she an­tic­i­pated the cen­tral bank would move slowly on in­ter­est rate boosts once it en­acts the first small one — ex­pected to be a 0.25 per­cent­age point in­crease. That means it will be “sev­eral years,” she said, be­fore the rate gets back to a more nor­mal 3.5% to 4% level.

Still, ris­ing rates sig­nal an end to the easy-money pol­icy that pushed 30-year mort­gage rates to a record low of 3.31% in 2012.

Real es­tate agent Anselm Cli­nard, who fo­cuses on the hot north­east Los An­ge­les mar­ket, said he’s never been busier, in large part be­cause of the ex­pected rate in­crease.

“It’s cre­ated some ur­gency in the mar­ket­place,” he said. “Ev­ery­one wants to get in while the get­ting is good.” jim.puz­zanghera @la­times.com an­drew.khouri @la­times.com

Brian van der Brug Los An­ge­les Times

ROSE-LINN JENSEN, 45, of Sher­man Oaks has bid on four houses and a condo in the Stu­dio City area in hopes of land­ing a prop­erty be­fore mort­gage rates rise.

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