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Fed hikes rates, as expected; mortgage rate movement not anticipated

03/16/2017

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“The Fed will raise the overnight cost of money on Wednesday, from a band 0.50 percent-0.75 percent to 0.75 percent-1.00 percent,” predicted Inman writer Lou Barnes on Friday. That’s a 0.25-percent hike.

Sure enough, at its meeting today, the Federal Reserve governors voted to raise interest rates by 0.25 percent, to 0.75 percent to 1.00 percent.

“That Fed move is already built in to rates” for other products (like mortgages), added Barnes — which seems to be the consensus from other experts, too.

The Federal Reserve sets the rate for the overnight exchange of money by banks; governors adjust the rate to help curb inflation or stimulate growth, depending on their assessment of what would be best for the economy.

Although this rate is not the same thing as the mortgage interest rate that buyers pay when they take out on a loan on a home, movement of the Fed rate up or down can put pressure on mortgage interest rates.

“With this increase well anticipated by most markets, Keller Williams does not expect any dramatic change in the current path of mortgage rates. Rates will likely continue to slowly rise this year barring a change in the economic situation,” said Ruben Gonzalez, staff economist, Keller Williams, in a statement.

“While higher mortgage rates will likely have some downward impact on demand, housing remains very affordable by historic standards and we anticipate another year of healthy home sales despite an environment of increasing mortgage rates,” added Gonzalez.

“We’ve been hearing that interest rates are going up for several years now, but then we watched them continue to hit all time lows,” noted top TripleMint agent Tyler Whitman, based out of New York City.

“For a bit, it started to feel like propaganda to encourage buyers to ‘get in while you can before interest rates go back up’ to get us back into a healthy housing market. Now, it is actually happening. We have watched rates go up over the last few months, and now buyers actually feel the pressure to pull the trigger sooner rather than later.

“However, some are still convinced this is just the same thing they’ve been hearing for years,” he added.

The Fed also dropped a hint or two regarding future rate hikes in its release announcing today’s rate change: “The Committee expects that economic conditions will evolve in a manner that will warrant gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run,” stated the release.

“However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.”

Joe Moshé, broker-owner at Charles Rutenberg Realty, added: “If you are buying a house with a $300,000 mortgage, a 1 percent difference from 4 percent to 5 percent means your monthly mortgage payments will go up from $1,432 to $1,610,” Moshé said in a statement. “That means you will be paying $178 more a month on a 30-year mortgage.

“Rising interest rates will negatively affect local real estate markets as we enter the spring buying season. With local real estate markets showing signs of recovery due to low inventories and increased demand, the question is by how much.”

Email Amber Taufen

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