Fed raises interest rates, but impact not expected to be severe for homebuyers

The Federal reserve has raised it’s short-term interest rate by a quarter percentage point.

The Federal Reserve, which had signaled interest rates were going to be ratcheted up, did just that on Wednesday, sending the benchmark short-term interest rate up a quarter of a percentage point.

The short-term rate likely will have some implications for the real estate industry, as increases in the short-term rate often result in increases in mortgage rates.

The average mortgage interest rate jumped to 4.17 percent last week in anticipation of the Feds announcement, according to USA Today. The upward shift was seen as a preparation by lenders for the announcement.

“While any increase in a mortgage interest rate adds to the cost of financing a home, the increase Wednesday is not expected to deter many people from their quest to buy,” said Doug Carpenter, Illinois REALTORS® president. “As we have seen for more than a year, consumer demand is such that the market impact should not be dampened in the near-term, especially given the relatively low numbers of homes on the market.”

A third rate increase could be in the offing as the Fed weighs largely positive economic numbers and tries to keep inflation in check.

“Borrowers with adjustable rate mortgages that are seeing their rates reset should brace for higher payments. Because most ARMs only adjust once per year, the next rate reset could be a doozy if it encompasses 2 or 3 Fed hikes in the interim,” said Bankrate’s Greg McBride in the USA Today online article.

 

 

 

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About Jon Broadbooks

Jon Broadbooks is Vice President/Communications for Illinois REALTORS®. He serves as editor of online and print content for the association’s communications including the Illinois REALTOR® magazine and e-newsletters. He conducts spokesperson training seminars and oversees website development for the Association.

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