Well everyone has been expecting it, but now it looks like it is happening and will continue to happen over the next year.
In an almost unanimous vote, the U.S. Federal Reserve increased the Fed Funds Rate by 25 basis points yesterday. That means the rate has been bumped to between 0.75% and 1.00%. Fed officials anticipate two additional increases in 2017 (most likely by 25 basis points both times)
While the rate increase indicates a strengthening economy, it will lead to higher interest rates for mortgages and other consumer and business loans across the country.
There was no indication the Fed plans to begin to reduce its large holdings of mortgage-backed securities (MBS) any time soon, and since Fed purchases of MBS have helped push mortgage rates lower, reduced demand for MBS from the Fed would be negative for mortgage rates.
😡 Agents Always Say It Is A Good Time To Buy Or Sell 😡
I've been in this industry for some time now and I get annoyed when I hear myself or others saying, "It's an amazing time to buy a house because interest rates are historically low." Okay, I honestly would never say it that way. I think the reason people are annoyed by that is because real estate agents aren't disinterested parties, right?
Let me be as genuine as I can be, it is a REALLY good time to buy if you are thinking about doing it in the next couple years and you're trying to decide whether or not to extend that lease or thinking about moving up to a larger home. In those two instances, you should look hard at buying.
The graph below, may help in giving context:
Interest rates are somewhere between 3.75% and 4.5% right now depending on credit, type of loan, etc, etc, etc...
What's The Point?
The thing potential buyers and Sellers need to understand is interest rates are going to effect the marketability of homes over the course of the next 2-3 years. The interest rates will rise and equalize to where they match historic averages. They have been artifically maintained at their low levels by the Fed for some time to foster economic growth.
This graphic shows how an increase effects buying power (Check out this to see how interest rates will slow home appreciation):
A 1% increase lowers buying power by $25,000 - Yikes.
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