Grand Forks bankers say economy is strong enough to handle rising interest rates – Grand Forks Herald

GRAND FORKS – Chris Wolf sees the financial world through a special lens. He freely admits that he is not an economist, but sees industry trends from his perspective of working with clients in the region.

Chris Wolf

Wolf is president of the North Valley Market for Alerus, a chain of financial institutions headquartered in Grand Forks. If there is one sentence to describe what he sees in the region, it is that the region is economically strong. This is a good situation, especially with the anticipation of higher interest rates.

At the time of this report, he said “interest rates are still at low levels.” But what if they get up?

The region would still be in a good position – as long as rates don’t rise too quickly.

“It would increase costs for businesses and individuals, which, if it happened too quickly, would lead to slower or less economic activity,” Wolf said.

“The economy in this region has been strong. When an economy is strong, one would expect, with an increase in inflation, that interest rates would rise. The economy can handle some amount of that and still be strong. The balance is that they don’t want to raise rates so quickly that it chills the economy.

The good news is that rates generally increase at a slow pace.

Sunil Swami, chief investment officer at Alerus, said there are other costs associated with higher interest rates, such as the increased cost of funding, which can lead to compressed valuations of stocks and shares. real estate. “However,” he said, “when rates rise due to economic growth, it implies that the economy is strong enough to support higher interest rates, which is positive.”

The geopolitical climate, including Russia’s invasion of Ukraine, can impact interest rate decision-making here.

“For example, higher oil prices can increase inflation, which could cause the Fed to raise rates more than it otherwise would,” Swami said, and that by the end of February the market expects about six rate hikes of around 0.25% each in 2022. .

Debbie Albert, financial adviser at TrueStone Wealth Management in Grand Forks, said she expects rates to rise.

“We think interest rates are probably on the rise,” she said. “We’ve seen very low interest rates for so long that it’s almost time for them to normalize. And that’s good and bad.

On the plus side, she said it’s good for those who save their pennies, those who typically use interest-bearing accounts – savings, money market accounts, certificates of deposit – because they’ve seen such a loss in their returns by spreading these types of investments.

“So that will be a plus for that part of the market,” Albert said.

It’s also good for retirees and seniors using their investments for retirement income, who have been particularly hard hit by low interest rates.

As an example, she says, if someone had $100,000 at 4.5%, that generated $4,500. When he loses a point, it’s a hundred dollars.

“They feel that,” she said. “It’s real money for this sector of the market.”

With higher rates, they get that money back.

Albert said rising rates could impact mortgages as homeowners could see an increase in their monthly payment.

“People who have had adjustable rate mortgages in the past might be surprised to see the mortgage interest rate go up due to the rate slowing down. It might slow down because it’s now getting more expensive,” she said. “The sector of the market that supports your highest mortgage balances is usually first-time home buyers. They have higher mortgage balances – those in their late 20s and early 30s who are just starting out. to build their home. That’s the area that’s likely to be hit the hardest. On the other hand, those who are sitting on the fence watching market rates and want to buy a home, it could get them on the fast track. the market.

Donovan Schumacher, mortgage banker and Red River Valley sales manager at Alerus, said the federal government was buying mortgage-backed securities and reinvesting its dividends into the market in the second quarter of 2020, which lowered interest rates and kept them low.

“The government then announced that it would stop investing its dividends and eventually start selling many of the mortgage-backed securities it had purchased,” he said. “This triggered the slow rise in interest rates beginning at the end of the third quarter of 2021 and continuing until today.

He said rates will most likely be 4% to 4.5% on 30-year fixed mortgages and 3.125% to 3.5% on 15-year fixed mortgages, “but there are still uncertain about the direction of rates. Adjustable mortgage rates are comparable to fixed rates, so most people opted for fixed rate mortgages to avoid potential rate fluctuations.

When inflation is high, he said, so are mortgage rates; as inflation declines, mortgage rates should also stabilize.

He said one thing people can do to protect themselves is make sure they have good credit, something that is achieved over time and not acquired all at once.

“Over the past 10 years, the average 30-year mortgage interest rate has been in the range of 4.125% to 4.25%,” Schumacher said. “To get the best rates, it is very important to take good care of your credit score. Credit scores affect many aspects of buying a home, from interest rates to the cost of home insurance.

Wolf, using his custom lens, said he’s not too worried about rising rates as long as they’re slow and steady. Construction, manufacturing and other industries continue to develop and grow in the area – there’s “a lot of activity, a lot of projects” here, he said – all signs of an atmosphere healthy economy.

“A rising interest rate environment can still be healthy for the economy in this region as long as they don’t raise rates too quickly,” he said. “Our customer base plans to expand their businesses and invest in this region, and we expect this to continue throughout 2022.”

This story was published in this month’s edition of

Prairie Company

, a free publication owned by Forum Communications Co. that covers business trends in the Dakotas and western Minnesota. Prairie Business is based in Grand Forks.

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