Getting a free consultation will not affect your FICO credit score.


Feds Meet. Rates Rise. Time to Buy!

By W. Todd Galde


In the Bay Area, owning a home is still less expensive than renting.

Todd Galde, Sr. Mortgage Advisor  

Unless you’ve been sleeping under a rock this week (my apologies if you are this beta fish) you know by now that the Feds announced their decision to increase the Fed Funds Rate by .25%, the first increase since December of 2015, and only the 2nd increase since 2006.

The increase came as little surprise to those in the finance world as the FOMC had been hinting back in November that a rate hike was coming. In fact, this weeks’ Fed statement gave an indication that more increases are coming in 2017, although they are still taking a “wait and see” approach.

As a result, it must be more expensive now to buy than rent… right?

With interest rates slowly ticking up, many think buying a home may become more expensive than renting. Mortgage rates are now at the highest level they have been in over two years and may continue to gently increase in the coming months. The reality is we may never see rates as low as they have been in the past year or so and maybe that is a good thing.

“There is a great debate over whether rising rates really matter to housing. After all, increasing rates are indicative of a stronger economy and a stronger economy favors housing,” writes Diana Olick of CNBC.

Doug Duncan, chief economist at Fannie Mae, said in a recent interview, “If interest rates are rising because the economy is growing more rapidly, then, typically, incomes also rise, and the rise in incomes offset the increase in the size of the mortgage payment, and housing goes just fine.”

The nuts and bolts: let’s talk numbers.

Rhetoric aside, with interest rates increasing, current renters want to know, how does the increase in rates affect the decision to buy a home or stay renting? The answer (if you live in the Bay Area) is relatively straight-forward: at the current levels of rental costs in the Bay Area, rates would have to go MUCH higher for it to not make sense to buy.

As an example, when comparing the purchase of a $650,000 home with only 3.5% down to renting a comparable home for $3,500/month, the Net monthly payment of an FHA loan at 4% is less expensive than renting.  The savings only gets better with a bigger down payment, such as 10 or 20%.


Click here for the fully Interactive “Rent vs OwnTotal Cost Analysis presentation.

Erin Lantz, VP of Mortgages at Zillow, says, “While those looking to buy a home are understandably concerned about the path of rates ahead, it’s important to remember that borrowing costs remain exceptionally low by historical standards.”

Erin is right, especially when you consider that rates were as high as 18% in the early 80’s. Fortunately we will never get back to that level, not with the measures put in place during the Reagan administration.

It’s important to remember what “home” means and that once you are in the home with a fixed rate, the payment can’t go up but your income will and over time, any anxiety experienced over rates will give way to the sheer joy and peace of mind that comes with owning your own home and being able to make it “yours”.

Todd Galde, Sr. Mortgage Advisor
Commerce Home Mortgage
Direct: 925.381.8190