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2015-12-18 10:10:01
How the Fed Rate Hike will affect Housing

America's first interest rate hike in nearly a decade is here.

The Federal Reserve raised its key interest rate on Wednesday from a range of 0% to 0.25% to a range of 0.25% to 0.5%.

Policy makers separately forecast an appropriate rate of 1.375 percent at the end of 2016, implying four quarter-point increases in the target range next year

The rate hike is a small one, but it will affect millions of Americans, including investors, home buyers, and savers.

Investors were pleased to see that the Fed expects 'only gradual increases' in rates next year and that the committee explicitly said it would take into account 'readings on financial and international developments.' Stocks rallied with the Dow rising 224 points after the announcement and Yellen's press conference.

Known as 'liftoff,' the Fed's action is expected to be the first of more rate increases that will probably come in 2016. The last rate hike was June 2006.

 

The question is how will this impact you?

For stocks, the first interest rate increase is likely mostly priced into the stock market.

Banks often get pointed at as potential buys when interest rates rise. And shares of the biggest banks have been rising lately. That’s because they can benefit from higher interest rates as long as they don’t have to pass that higher interest off to borrowers.

As for borrowing, there is already a large gap between interest rates and what most people pay on their credit cards. Greg McBride of Bankrate.com says it usually takes more than one interest rate hike to impact credit card rates. Variable rate home loans usually adjust once a year. So if the Fed raises rates two or three times before your next loan adjustment, then “you could see a noticeable interest rate increase” on your house payments, adds McBride.

But most borrowing rates, like 30-year mortgages, are tied to longer term interest rates, which typically rise when the economy is expected to do better. So if the Fed ends up raising interest rates without sending us into a recession, then borrowing costs for houses and autos could go up too, and that will cost consumers.

Doug Duncan, chief economist of Fannie Mae, says, A far bigger restraint on home sales is a limited supply that should push up prices by nearly 5% both this year and in 2016, with higher rates holding back 1% to 2% of deals. But hopefully the extra cost will be a small price to pay for a better economy.

 

For More in Depth on how the Fed Rate Increase will affect Auto Sales, the Stock Market, Construction, Banks, and Housing check out the following link.

Fed Rate Hike Impact

 
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