The Federal Reserve on Wednesday voted to raise its benchmark interest rate by a quarter of a point to the highest point in more than a decade, and the housing market is now bracing for impact.
The Fed lifted its rate to range between 2 percent and 2.25 percent. This is the third time in a year the Fed has raised its rate. The committee points to an upbeat economy that is “healthy and moving forward.”
“These rates remain low,” Federal Reserve Chairman Jerome Powell said at a news conference. “This gradual return to normal is helping to sustain this strong economy for the longer-run benefit of all Americans.”
While the Fed’s key rate is not directly tied to mortgage rates, it does often have an impact to home loan rates.
“The era of super-low mortgage rates is over and consumers will face higher interest rates over the next two years,” says Lawrence Yun, chief economist of the National Association of REALTORS®. “Another rate hike by the Fed is almost certain before year’s end, along with three further rounds of increases in 2019. These interest rate increases are occurring for good reason: an improving economy. Therefore, 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.”
The Fed strongly hinted at more hikes ahead. “The committee expects that further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the committee’s symmetric 2 percent objective over the medium term,” the Fed said in a statement. “Risks to the economic outlook appear roughly balanced.”
Source:
“A ‘Particularly Bright’ Moment Brings Another Fed Rate Increase,” The New York Times (Sept. 26, 2018) and “Fed Raises Interest Rates, Signals More Increases This Year,” The Wall Street Journal (Sept. 26, 2018) [Log-in required.]
