Federal Reserve Raises Interest Rates – What it Means for Housing

Today, as long expected, the Federal Reserve has raised the benchmark interest rate by a quarter percent. It is the first time since December 2008 that the Fed has raised the rates, and they emphasize that they will continue to lift it gradually.

Callout quote“The [Fed] expects economic conditions will evolve in a manner that will warrant only gradual increases in the fed funds rate,” the Fed said in a statement (Wall Street Journal, December 16). The Fed has stated they will continue to carefully monitor progress, but are reasonably confident that inflation will rise.

How does this affect housing? Some economists are saying that “people who want to buy a house should have a greater sense of urgency.” Explains one real estate consultant:

“Mortgage rates are expected to rise about 1 percentage point over the next several years. That would mean the same-priced house will cost you 12 percent more in monthly payments.

“So if mortgage rates go from 4 [percent] to 5 [percent], payments are going to go up 12 percent; that will hit affordability hard,” he says. “And I don’t think that message has really gotten out there to people — that they understand they should take advantage of where rates are today” (NPR, December 15).

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