The Federal Reserve has put on its hiking boots. Last week, the Federal Reserve hiked its benchmark interest rates. Homeowners and prospective buyers alike are rightfully alarmed about what the increased interest rates could signal for the housing market. Since the great recession back in 2007, homeowners enjoyed relatively lower interest rates as the federal government attempted to rebuild the economy. A recent article from Housing Wire suggests that as a result of the Federal Reserve interest rate hike, the period of uncertainty has only just begun.
More Interest Could Mean More Money?
Typically, higher interest rates tighten the housing market as prospective buyers may not qualify for mortgages and homeowners may face higher monthly mortgage payments. As such, people may be less likely to purchase homes and/or commit to increased mortgages. However, a recent Freddie Mac mortgage report shows that interest rates are actually at the lowest level in nearly seven months. As the Housing Wire article puts it, “[T]his hike was largely priced in to markets already, so mortgage rates should remain flat or even fall slightly.”
Additionally, many economists have said that the increased Federal Reserve interest rates may actually be a positive thing for prospective homeowners. How could that be? For starters, prospective purchasers may be inclined to purchase sooner rather than later when the interest rates increase. Also, because the increased interest rate provides an additional safety cushion to creditors, the increased rate could potentially incentivize creditors to relax stringent requirements for loans. This, in turn, will allow millions of credit-worthy borrowers previously prevented from obtaining a mortgage, to have better chances to obtain home loans, as indicated in a recent CNBC article. Both factors are expected drive up demand in the housing market for the next few months.
Not All That Glitters Is Gold
Despite certain potentially positive outcomes of the Federal Reserve rate hikes, a further peak into things shows that there is a possibility that they will wreak havoc. When combined with a low rate of inflation and low interest rates on long-term bonds, increases in the interest rate may cause our economy to once again fall into a recession.
As of now, there is still a widespread lack of knowledge as to whether the Federal Reserve will continue to increase interest rates, and if so, by how much. Another four Federal Open Market Committee meetings are expected in the coming year, meaning that there are several more opportunities for rate hikes. Amid the uncertainty of the Federal Reserve’s future decisions, homeowners need to put on their hiking boots and prepare to navigate the rough terrain that may lie ahead.
From the trenches,