Fed Rate Increase And What This Means For Real Estate
On Wednesday December 16, 2015, The Federal Reserve increased the interest rate by twenty-five basis points (or 0.25%), from zero basis points (or 0%). This interest rate hike has created some concern that it could impact real estate markets as capitalization rates sometimes correlate with these interest rate increases. However, analysts feel confident that real estate markets will experience very little, if any drawback from such small a increase in rates.
According to the Philadelphia Inquirer, Chief Economist at Moody’s Analytics, Mark Zandi has stated “There should be minimal impact on the rate for a 30-year fixed-rate loan because such rates are tied to long-term Treasury yields, which have already discounted a Fed rate hike”. Most mortgage lenders have already expected such an increase in interest rates, and have priced these increases into their lending interest rates.
In an article from Housing Wire, when asked about the the impact of interest rates on home-buyers, Selma Hepp, Trulia’s Chief Economist said ““If the Feds decide to increase the rate at their meeting tomorrow, any increases in rates will be nominal and gradual. Impact on home-buyers will be minimal. For example, an increase of 25 basis points on a mortgage loan of $250,000, raises the mortgage payment by $35. I don’t think that will turn people off from buying a home, but they may end up looking to buy a slightly less expensive home.”
The increased Fed rate could have an impact in housing markets like San Francisco, where real estate is expensive and there is a limited supply in the number of properties available, accompanied by a high demand. However, even with these types of market constraints, it is still unlikely that a rate increase will have a dramatic affect on these types of areas.
The most important thing to keep in mind is that the Fed is not interested in raising the interest rates as to shake the system, especially the housing market, which has been stabilizing over the last few years.
