Hi everybody,
Thank you for reading my blog on the real estate market. I have been asked a number of times on the rate increase by the Fed recently. With the number of repeat questions and answers, I decided to blog it so people can read it at their own leisure.
On June 14, 2017, the Federal Reserve raised its interest rates again, increasing the federal fund rate 25 basis points from 1.00% to 1.25%. I can get in the analysis of this rate change and the impact on the macro-economic level but I am sure you have read enough articles out there that I would not be able to provide any more insight.
Instead, let's focus on the individual level. Fortunately, the 25 basis points change would not have a big impact on consumers. Credit card rates as well as car loans may increase. Thus, for those are pay off credit card balances in full each month, this will have no impact. For those who do keep a balance, then expect a slight increase interest charges.
For those who are worried about the rates impacting the long-term rates, you're in luck -- the impact on the housing front will not be immediate. 30-year fixed rates are still hanging around the 3.875% to 4%. Even jumbo loan rates are insanely affordable (4% to 4.5%) compared to what they were like years back.
Keep in mind the Federal Reserve will meet four more times this year: July, September, October, December. Fed officials expects at least one more rate hike later this year. And with this "expected" rate hike, the Federal Reserve will surely increase its rates again. Yeah, it is kind of a circular logic, but in actuality, it makes perfect sense for the Fed to increase the rate. Since the public is already expecting the rate increase, any rate increase will not instill a sudden fear and anxiety.
That expected rate increase may have a greater impact to the long-term loan rates. Yes, this could mean there will be a departure from the current home loan rates that we are currently enjoying right now. How will this impact the housing market? Again, it's tough to say -- any home loan rate increase would suppressed the housing prices, but the economy (or the perception of the economy) is bright, which would help keep prices from dropping dramatically. I am expecting a small price correction by the end of this year but not any grinding-halt-hold-onto-your-seatbelt price drop.