Higher Interest Rates & Interest Rate Hikes Are Comming In 2016
It seems as though the time has come. Higher interest rates are coming. For the very first time since June of 2006, the Federal Reserve seems primed to increase interest rates. There are strong signs they will, while it’s not a guarantee that the Fed will increase rates. This conjecture is leading many to wonder what the economic ramifications will be across various sectors, especially real estate, and if this is actually the best time to do thus.
Federal Reserve of New York
For almost a decade, the Fed has kept its benchmark interest rate between 0 and 0.25% and have prevented interest rate hikes up to this point. That was in the middle of the longest recession since the Second World War. The move created a buyers market thought to spark economic growth that the fast decreasing economy urgently wanted. Nevertheless, matters are different now, or at least the Fed expects it’s.
Since March, Fed officials have said they expect increasing interest rates before the end of year. The common topic in statements from officials has become fighting inflation, robust employment data, and the continual economic rebound. Jeffrey M. Lacker, a member of the Federal Open Market spoke about his fear of inflation in September:
“Some might claim that as long as inflation is close to 2 percent we’ve got a free pass — we can keep supporting the actual side of the market with low rates until inflation rises. But if, as I Have claimed, the actual side of the market calls for a higher rate of interest, then there’s a real risk related to this particular strategy. Inflation is a lagging index, as well as the forces that lead to increasing inflation can develop prior to they can be evident in the data.”
Maybe even more important were the words of William Dudley, the president of the Federal Reserve Bank of New York. Dudley said as recently as November that, involving rates of interest, he finds “… the dangers right now of going too fast versus going too slowly as almost balanced.”
What this Means for Real Estate
Interest rates have not been very high the previous decade many do not even recall what it is like to pay rates that were typical in the 6-8% range. Sadly, for a housing market that’s still not completely recovered from the downturn, a return to those “standard” rates could cause some significant issues among both home buyers and people looking to sell their houses.
Higher rates of interest on mortgage loans falls purchasing power for those looking to get a brand new house. This clearly goes together with raising the hard of selling a house, as those looking to purchase a brand new residence may well be more inclined to take a seat on their hands rather than taking actions.
In the event the Federal Reserve does determine to increase the rate of interest this year, they’re likely when the policy making group that determines on the target rate reasons its two day meeting to do so on December 16th. The following meeting scheduled after that happens January 26-27 and March 15-16.
Whether the rates are increased six days from now or farther out, it is clear that time is running out for folks expecting to sell their houses with the fewest obstacles potential.
- January 20, 2016
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