Credit card interest rates will increase. Homebuyers will pay more each month for their mortgages. And there are more increases to come as the year progresses.
The Federal Reserve announced Wednesday it would raise a key interest rate by half a percentage point, an unusually large jump.
This will be a jolt for most consumers, although it’s not one they’ll see immediately.
Most rates, however, were already up in anticipation of Fed action, said Song Won Sohn, president of SS Economics, a Los Angeles-based advisory firm.
Colleen McCreary, consumer finance advocate at Credit Karma, said “the planned rate hikes will impact most people, making it much more expensive to borrow, and the same goes for Californians.” But some groups may feel the brunt of rate increases more than others.
“Rate hikes can hurt low-income households and consumers with low credit ratings, especially those who typically depend on credit to make ends meet,” she said in an email to The Bee.
“Remember that in this environment, the more you borrow, the more you are likely to pay.”
While this rate hike won’t drastically change anyone’s shopping habits anytime soon, it’s likely to be another step in triggering a chilling effect on consumer behavior.
“It’s like being an MMA fighter,” said Matt Schulzchief industry analyst at LendingTree, citing mixed martial arts.
“That first punch or kick probably won’t knock you out, but if you keep taking hit after hit, you might find yourself on the mat before too long,” he said.
Here are the expert perspectives:
Mortgage rates in California could soon climb to an average slightly above their current level of 5% for a fixed-rate loan, said Jordan Levine, chief economist at the California Association of Realtors.
That means someone buying a home at the median price, projected this year at around $835,000, would pay around $800 more per month than if they had bought it when rates were around 3% in the beginning. of this year.
Data from real estate agents showed that in Sacramento County, the median price of a home in the first quarter was $545,000, requiring a minimum annual income of $108,000. The monthly payment averaged $2,700.
In Fresno County, the median was $405,000. The minimum qualifying income was $80,400 and the average monthly payment was $2,010.
In Stanislaus County, the median was $460,000. The minimum income was $91,200 and the average monthly payment was $2,280.
In San Luis Obispo County, the median was $852,250. The minimum income was $168,800 and the average monthly payment was $4,220.
Levine noted that mortgage interest rates rose about 5% or slightly more in anticipation of Fed action.
“In the short term, I think the selling will hold,” he said, as buyers expect rates to rise again, creating a sense of urgency for buyers committed to closing a sale before the price hits. it becomes more expensive to borrow.
But as the year progresses and the Fed raises rates further, Levine thinks the trend “will eventually dampen home sales. Still in an excess demand environment. I think at the margin there will be people who will not be able to absorb the increased costs.
Robert Lapsley, chairman of the Business Roundtable, cited another factor that could affect sales. “It could have more of an impact on the psychology of our housing market for first-time buyers,” he said.
Schulz of Lending Tree estimates that your current credit card rate “will likely increase within a billing cycle or two after this rate hike.” If you shop for a new credit card, you will see the effects even faster.
He reviews about 200 cards each month and found that less than a month after the Fed’s last rate hike, 75% of the cards had raised interest rates.
Credit Karma’s McCreary said the immediate impact on credit card rates will be minimal, but consumers with “high” balances on high-interest cards may feel the pinch more.
McCreary recommends people with unpaid credit card debt prepare by focusing on paying off the balance or, as Schulz advised, consolidating it into a personal loan or balance transfer card.
“Personal loan rates are generally lower than credit card interest rates, and if you have multiple outstanding credit card balances, a balance transfer card often comes with an introductory APR of 0% “, she said.
While a half percentage point may not seem like much, Kelley Blue Book editor Brian Moody said it comes at a time when other factors are driving up the cost of buying and owning a vehicle.
Car and gas prices — which still average more than $5 a gallon in California — are high. Now, with rising interest rates, loans will be more expensive, he said.
Moody’s said more people would likely finance a larger amount of money for the cars or could finance one for a longer period to lower the payments.
“It’s also difficult because even if you lower your monthly payment, you’ll end up paying more for the car because you’ve extended your loan,” he said.
Those with savings accounts can enjoy the bright side of rising rates.
“Higher rates mean consumers who save this year will produce more returns than they did last year, and that all helps, especially with inflation at a 40-year high,” McCeary said.
According to Discover, an online bank and payment service provider, when the Fed raises interest rates, banks can increase interest on savings accounts prices too.
But you won’t see this additional change happening immediately. You can check the interest rate you earn with your bank by the annual percentage yield on your account.
This story was originally published May 4, 2022 11:46 a.m.