In an anticipated decision, the Federal Reserve moved to raise rates this week, in the range of 2-2.25 percent—its third hike in as many meetings this year. A December increase is now on the market’s radar, with the Fed indicating it intends to raise rates then, as well.
“The labor market has continued to strengthen and…economic activity has been rising at a strong rate,” according to a Fed statement. “Job gains have been strong, on average, in recent months, and the unemployment rate has stayed low. Household spending and business fixed investment have grown strongly. On a 12-month basis, both overall inflation and inflation for items other than food and energy remain near 2 percent.”
For the average consumer, borrowing costs are increasing with the raise, but there will also be better CD rates (read: savings)—and for the broader economy, in-check inflation can lead to more purchasing power.
Demand for housing could jump, as well. The decision could encourage hesitant homebuyers to lock in lower rates—a prompt more pseudo-psychological than realistic, as mortgages are moved by treasury yields.
Just as well, interest rates are taking off, says Lawrence Yun, chief economist at the National Association of REALTORS® (NAR).
“The era of super-low mortgage rates are over and consumers will face higher interest rates over the next two years,” Yun said in a statement. “Another rate hike by the Fed is almost certain before the year-end, along with further three rounds of increases in 2019.
“These interest rate increases are occurring for the good reason of improving economy,” said Yun. “Therefore, the home sales should hold steady as the opposing forces of higher rates and more jobs neutralize each other. Home price growth will surely slow, however, as higher interest rates limit the stretching of the homebuyers’ budget.”
According to Ruben Gonzalez, chief economist at Keller Williams, there is debate over the path rates will take.
“The Fed’s intentions have generally been well-anticipated, and our primary attention in terms of rates is currently focused on long-term treasuries, with implications either being that mortgages rates will track upward with them, or, if not, and the yield curve does invert, that we may see some deterioration of demand within the next two years,” Gonzalez says.
According to Freddie Mac’s latest report, the average adjustable rate is 3.92 percent. In September 2017, it was 3.17 percent.
“Borrowing costs are moving for three main reasons: the very strong economy; higher U.S. government debt issuances; and global trade tensions,” said Sam Khater, chief economist at Freddie Mac.
Suzanne De Vita is RISMedia’s online news editor. Email her your real estate news ideas at sdevita@rismedia.com. For the latest real estate news and trends, bookmark RISMedia.com.
