Interest Rate Increases Still Gradual

Picture of Author: Rich Barnhart

Author: Rich Barnhart

Housing Recovery
Recent modest mortgage rate increases have little affect on the overall housing market

Every time the Federal Reserve raises interest rates we have a mini panic in the real estate industry. Concerned buyers worry that they cannot afford to buy their dream home anymore and sellers worry that if buyers cannot get financing then shrinking demand will increase inventories and push home prices lower. The fact is that Federal Reserve policy has very little direct influence on mortgage rates and the overall real estate market. Mortgage rates respond to actual market forces like bond rates and inflation expectations.

In March the Fed increased the Federal Funds rate to a range of 1.5% to 1.75%. The recent rate hike is the first of possibly 3 or 4 rate increases this year according to new Fed chairman Jerome Powell. This was the 6th rate hike since December 2015 and during that same period of time 30 year fixed rates increased less than one half of one percent. This modest mortgage rate increase in recent years had little to do with Fed policy and was more directly tied to the yield on the 10 year Treasury Bond which increased similarly over the same period.

What is the real affect on the real estate market?

The fact is that mortgage rates currently have very little affect on the overall real estate market. Expect continued growth in our housing market driven by the fundamentals of the economy like lower unemployment, higher wages, lower taxes and increased buyer demand. Millennials and Gen-Xers, who have more savings to invest in buying a home, are being joined in the buyer marketplace by immigrants, foreign investors and bankruptcy survivors who have patiently waited out their 7 years on the sidelines. And, as long as mortgage rates stay historically low, high rental rates in some parts of the country (like Fort Lauderdale) will drive renters to buying a home. Bottom line, when making a buy/sell decision, consult with your local REALTOR® and stay on top of local real estate trends and statistics.

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Blog Author:

Rich Barnhart

Rich is the broker and owner of By The Sea Realty and a frequent contributor to the company's real estate blog.

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