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Experts say interest rates and wages will rise

shopping baskets on a conver belt with two houses in them to show how interest rates are risingExperts say interest rates will rise as the Federal Reserve eases accommodations it made to boost the weak economy. That’s the bad news. Now the good news: wages are likely to increase, too. And, statistics show that new household formations are on the rise. All combined, the latest news equals a healthy housing market.

Michael C. Fratantoni, the chief economist of the Mortgage Bankers Association, explains that a chief reason for optimism is the improving job market. Fratantoni was speaking at the National Association of REALTORS® office in Washington last month
Fratantoni based his predictions on these facts: during the economic crisis, there were nearly seven job seekers per open position. Today that number is down to just two. At the same time, the country’s unemployment rate continues to drop. That means employers will be pressured to raise wages in order to compete for workers. It’s those rising wages that Fratantoni and other experts say will trigger inflation and more rate hikes.

The first Fed hike will come in September as the 30-year fixed mortgage, which has hovered below 4%, is likely to hit 4.4% by the end of the year. The rate is expected to surpass 5% next year.

“We think the improvements in the job market that we’ve already experienced, and that we’re likely to experience the remainder of this year and into next year, are going to be enough to offset any headwind from that rise in rates,” Fratantoni said.

Experts say there’s more good news on the horizon. The number of younger buyers moving out on their own will begin to rise along with wages.

“Household formation, which had been lagging for a while, is now running in excess of population growth,” he said. “You had a lot of young adults who just did not venture out on their own for one reason or another that have now made the jump.”

If you are ready to jump into buying or selling your upscale home in Santa Barbara, Hope Ranch, Montecito and the other surrounding upscale communities, please give me a call at 805.886.9378 or email me at I keep abreast of all the important information regarding interest rates and wages to help my clients make the best decision when it comes to buying or selling property.

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