Third Rate Hike In 7 Months
We all anticipated that the Federal Reserve was going to raise interest rates this quarter… and that’s exactly what happened on Wednesday, June 14, 2017. Rates were raised a quarter of a percent, making it the 5th rate hike since December of 2015. The Fed didn’t raise rates for 8-years after the crash in an effort to allow the American economy to recover.
Why Is The Fed Raising Interest Rates… Again?
They gave us two reasons: 1) unemployment statistics are strong and 2) inflation is low. Currently, unemployment is just 4.3% and expected to fall to 3% by the end of the year.
What Impact Does The Fed Have On Mortgage Rates?
The Federal Reserve sets the overnight exchange of money for the entire banking industry. They only adjust the rates to curb inflation or to stimulate economic growth. Technically, these exchange rates are not connected to interest rates on mortgages. But in reality, they put a lot of pressure on the mortgage industry to conform, so the rates in which home buyers borrow money is definitely impacted by the Federal Reserve’s decision-making.
Context Is Key Though…
Rate hikes can be scary for both home buyers and home sellers. If buyers have less buying power, sellers have fewer buyers. And if sellers have fewer buyers, home prices drop. But we have to keep it all in context. Despite all of the rate hikes, mortgage rates are still historically low. Most of the Inland Empire buyers that I’ve been working with are getting interest rates that range from 3.75% to 4.75%.
Furthermore, we’re still in a hot seller’s market. I’ve seen so many homes here hit the market on a Friday and go in Escrow by Monday. We’re also seeing multiple offers and cash offers on these homes as well. So until the seller’s market cools off, there’s nothing to fear.
Are More Hikes Coming Soon?
If the economy remains stable, rates could continue to rise quickly. But if there is doubt in the eyes of the American people, the Fed will probably raise rates at a much slower pace. Although unemployment and inflation are low, there are other factors that may influence the Federal Reserve to pump the brakes. The country is still dealing with high consumer spending and political uncertainty (stemming from healthcare, tax reform, and Russia Investigation).
Thinking About Buying Or Selling A Home?