Real Estate News

3 possible results of the Federal Reserve rate increase

Published: 28 Mar 2017

After speculation and hints, the Federal Reserve did finally raise rates on March 15, 2017. Although there was much written about this hike before it even happened, now there's a greater opportunity to see what exactly will play out for mortgages, especially if further rate changes are on the way.

Here are some of the possibilities various sources see in context alongside the new decision:

  1. The hikes encourage existing trends: Bank of the West economist Scott Anderson told NerdWallet that the increase follows other conditions which have affected the market. "Mortgage rates are already being pushed higher on expectations of higher short-term interest rates and rising inflation expectations," Anderson said. "However, the tightening labor market, rising wage growth, high levels of consumer confidence and a [millennial] generation with a pent-up demand for housing should allow the housing market to weather the storm of gradually rising interest rates."
  2. Consumer relief and debt management programs continue: The New York Times recently reported on Goldman Sachs' strategy of purchasing distressed mortgages, which controversially offer profit. If rates prove to be troublesome, this and other banks could turn toward similar programs to be more attractive to cash-strapped consumers.
  3. Tempered mortgage rate growth amid rate hikes: Despite the concern over mortgage rates, the Washington Post said that there's usually little direct connection between these Fed raises and the national mortgage rates. The other conditions encouraging the mortgage increase, such as high application rates and inflation, could continue, with the mortgage rates themselves eventually evening out.

The Post also said that the rate increase had similar effects on both 15 and 30-year fixed average mortgage rates: the former grew by .08 percentage points from the previous week's measure, while the latter rose by .09 percent during this same time.