It’s official – Fed raises rates for second time in 3 months
Rate hike already priced into markets
The Federal Reserve just announced the first interest rate hike of 2017, and the second rate hike in three months.
The Federal Open Market Committee concluded its meeting with the announcement that the Fed will raise interest rates by 25 basis points to a range between 0.75% to 1%.
The last rate hike occurred in December, when the Fed moved to raise rates to a range from 0.5% to 0.75%.
A few months ago, some economist would have laughed at the notion the Fed would raise rates again so soon. For example, Jason Obradovich, New American Funding executive vice president of capital markets, explained that for all its intentions, the Fed probably won’t be raising rates as much as it would like in 2017.
But others predicted the Fed would raise rates more in 2017, saying the year could see up to three rate hikes.
More recently, however, the market had no doubt about the upcoming rate hike, and even say the increases is already priced into the market.
“With this increase well anticipated by most markets, Keller Williams does not expect any dramatic change in the current path of mortgage rates,” Keller Williams economist Ruben Gonzalez said. “Rates will likely continue to slowly rise this year barring a change in the economic situation.”
And indeed it’s no surprise that the market already priced in the increase as experts explained Friday’s jobs report confirmed a March rate hike. Even Fed Chair Janet Yellen herself said a rate hike would likely be appropriate in a recent speech.
One expert cautions that rising interest rates could scare some into thinking it will negatively affect the housing market, however he insists this is not the case.
“Reports have suggested, or surely will, that this rise in mortgage rates will be the demise of the housing market,” said Mark Fleming, First American Financial Corp. chief economist. “That’s just not so.”
“Yes, many existing homeowners will have a financial disincentive to sell because they would lose their lower than prevailing mortgage rates in doing so, the so-called rate lock-in effect,” Fleming said. “I have suggested that this is one of the reasons we see low inventories in most markets today, but it’s not as simple as that.”
“We don’t act rationally,” he explained. “Even economists who, of all people, should know better!”
In fact, experts say even with the rate hike, the benefits of owning a home are still clearly evident.
“Following today’s expected quarter-percent Fed Interest rate hike, the prospective homebuyer is still in a great position to purchase a home,” Stewart Title Chief Economist Ted Jones said. “Even with higher interest rates, owning a home may still be the best option for consumers versus renting if they plan on living there for three years or more.”
“With further anticipated rate hikes later this year, that shouldn’t dampen the attractiveness of owning a home,” Jones said. “However, increasing rates make the case to lock in a mortgage sooner rather than later.”