It will make buying housing on the island more expensive | finance

With the new rate hike by the Federal Reserve System (Fed), there will be more people and families who will find obstacles in qualifying for a mortgage loan, thus reducing the odds of owning a home.

Buying a home won’t be the only thing getting more expensive, the same will happen with auto loans and personal loans, and credit card interest can also reflect changes.

The Federal Reserve raised interest rates by 0.75% in an attempt to curb historical levels of inflation. This is the Fourth increase since March and considered the most aggressive measure since 1994This is the first time in recent history that rates have been raised twice in a row by three-quarters of a percentage point. High levels of uncontrollable inflation forced the enterprise to take more aggressive decisions to reduce consumption.

One is expected to be The sectors that will have the greatest impact on the island will be real estateBecause by increasing the interest, many people who apply for a mortgage loan will no longer qualify. This happened when the latest increase of 0.75% was announced on June 15th.

“I have already received cases from clients who have stopped qualifying. Last week, a buyer from Mayagüez, who wanted to buy an apartment for $85,000, was unable to close the purchase when interest was raised from 3.5% to 5.50%. The payment went from $400 to $600, said Robbie Gonzalez, president of the Realtors Association.

Added to the increase in interest is that the housing market is already seeing very high prices and inventory has been reduced.

“Now more aid will be needed so that people can qualify. High interest rates and real estate not being normalised. It would be difficult for middle or lower class families to buy. In fact, I also know of cases of the wealthy segment not closing loans because their interests have changed and they regret the purchase,” Gonzalez explained.

A new blow to the consumer's pocket is brewing

He explained that other costs are added to the monthly mortgage payment, such as insurance and contributions from the Municipal Revenue Collection Center (CRIM), which increases the final amount. Therefore, buying a property for buyers with limited income becomes more difficult.

“A person who previously qualified for $90,000 is now eligible for $75,000. In some cases, the qualification becomes too loose and the money that would have been used for something else now has to be adjusted, so the family’s lifestyle changes.”

Higher interest effectconfirmed by Pedro “Peter”, TorresFormer President of the Puerto Rican Mortgage Banks Association.

Stopping consumption could disrupt the island's economy

If the loan will be more expensive for the bank, then this cost will be passed on to the consumer. Just like auto loans and lines of credit, everyone will be affected. We already knew in mortgages the line the Fed is taking, which is that it’s going to go up,” he noted.

IRAELIA BERNASSCEO of the company Association of Insurance Companies of Puerto Rico (Acodes)he sure said thatThis makes it difficult for the consumer to obtain the property because the credit is more expensive and the monthly installments are rising. This means that fewer people are eligible for real estate.”

On mortgage insurance, he explained that “the interest rate hike will not affect the property insurance.” However, he mentioned that for the insurance industry, the most worrying thing is that with inflation, the replacement cost in the case of the alleged loss would be higher. “This can be a problem if the consumer does not update the insured values ​​(i.e. increase coverage). If you have insufficient coverage, you can apply the coinsurance penalty clause and affect what you get from the insurance company. Therefore, the policies must be updated. You must Check with the insurance company to make sure there are no problems.”

The result in the economy

When referring to the economic repercussions, Economist José Joaquín Villamil He said that with these measures of interest increases “The Fed would probably control inflation, but the cost in terms of potential recession would be enormous.”.

This is what was expected and this will not be the last increase in interest rates. What you have to see, looking ahead, is that the Fed is doing this to reduce effective demand growth, but that inflation is not on the demand side, it’s on the supply side.”

The decrease in the price of gasoline does not lead to an increase in consumption on the island

He pointed out that The Fed’s actions could disrupt the income and cost of living of Americans and Puerto Ricans.

Puerto Rico will suffer the consequences of that recession and will continue to experience a process of inflation. They will buy the most expensive things and there will be little chance of career growth. Perhaps it is something similar to what happened in the 1970s, an inflationary situation with little economic growth,” Villamel analyzed.

He said People will have to get used to the higher prices. They have stopped falling in gasoline, but this could change at any time due to market conditions or geopolitical issues. The only good thing is that awareness has been created of the need to understand the global environment and what its changes involve,” Villamil said.

The decline in car sales could continue until the end of 2022

for him Economist Heriberto MartinezAnd the The only tool the Fed has to reduce inflation is to raise interest ratesbut the result of this measure will appear later, since there is a lot of uncertainty at the economic level.

“This means that access to credit will be more expensive, such as mortgages, and lines of credit for entrepreneurs, so we are going to a point where we will see if the increase in rates has an impact on inflation. There will be an increase in credit to families and productive sectors,” Martinez said. This could be a problem for the economy.”

According to Martinez, this will have the effect of boosting savings, not investment. He announced that people would buy US Treasury bonds and certificates of deposit, financial instruments that are safe and have an acceptable rate of interest and return.

However, Torres believes that changes in the investment market after rising interest rates have certain benefits in mortgage loans.

“When investors move out of the stock market to invest in bonds, the interest rate goes down and the price of the mortgages we sell in the secondary market goes up,” he said.

for this part, Zoom Alvarez Rubioexecutive vice president of the Association of Puerto Rican Banks (ABPR), said that Observe the domestic impact of interest and accept that the most affected banking products are those with floating interest.

“In June, the FOMC stated that inflation remains high and that if the US economy continues with this forecast, further increases can be expected during the year,” Alvarez said.

About the auto industry Joseph Ordixhead of GUIA, I realized that higher interest had a detrimental effect on trade and the auto industry.

The cost of loans goes up and people usually pay little. Despite inventory shortages and inflation, June acted aggressively. It is necessary to find out if the new increase in interest causes any braking or decrease. The trend is to pass, we have to wait for the effect,” Ordix explained.

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