Fed Votes to Raise Rates: The Housing Impact?

The Federal Reserve is picking up the pace, voting on Wednesday to raise its key interest rate just three months after its last rate hike. The Fed announced that short-term interest rates will increase by one-quarter of a percentage point and suggested that two similar increases likely will occur later this year. Mortgage rates aren’t directly tied to the Fed’s short-term interest rates but tend to follow them.

As of Tuesday, the 30-year fixed-rate mortgage averaged 4.39 percent, according to Mortgage News Daily. Last summer, rates were near record lows of 3.44 percent.

“Rising inflation will predominantly dictate the next monetary policy decision, but another short-term rate hike should be expected by the end of the summer,” Lawrence Yun, the chief economist of the National Association of REALTORS®, notes at the association’s Economists’ Outlook blog. “Right now, rents and housing costs are increasing faster than other components because of the stubborn housing shortages in much of the U.S. To contain inflation and slow the pace of future rate hikes, more home construction is needed now.”

Source: “How the Fed’s Latest Move Is Expected to Hurt Buyers,” realtor.com® (March 15, 2017) and “Fed Quickens Pace, Raises Rate 3 Months After Last Hike,” RISMedia (March 15, 2017)