Federal Reserve Chairwoman Janet Yellen announced Wednesday the Fed would raise its short-term interest rate a quarter of a percent, up from the near-zero rate it’s held since the beginning of the recession.
The move is widely viewed as a vote of confidence in the economic recovery and stocks soared ahead of Yellen’s announcement. The Dow closed up nearly 225 points.
The housing industry — the intended beneficiary of seven years of historically low interest rates — has closely monitored a possible increase. With it finally here, few are wringing their hands, though.
“The change is so nominal, we might not even see it (in mortgages) for a while,” said Sandy Robertson, a Bank of America executive in charge of home lending for Florida and Tennessee.
He predicted virtually no impact to housing in 2016.
In raising the rate, Yellen noted “considerable progress” had been made in restoring jobs, raising incomes and easing the hardships of Americans, though “room for further improvement in the labor market remains.”
The Fed will continue to watch employment and wage growth, and also inflation, which the committee would like to see average 2 percent. Yellen said future rate hikes would likely happen at a gradual pace.
David Smith, Florida division president for AV Homes, said the housing market has been preparing for a rate increase for a long time.
Wednesday’s was so small, he doubted it would have a negative effect on buyers. Possibly, the opposite — Smith’s company saw a buying flurry in the week leading up to the Fed announcement.
“Recovery means confidence in the market and that could move people into more of a buying cycle,” he said.
With the mortgage meltdown gripping the American economy, the Fed in 2008 lowered interest rates to the near-zero emergency level.
The Fed’s short-term interest rate correlates to other bank lending, including mortgages. The average rate of a 30-year fixed rate home loan today stands at just 4 percent.
It’s nothing like the average rate mortgages saw the 1970s, 9 percent; the 1980s, 13 percent; or the 1990s, 8 percent, said Robertson. With today’s rates still so low, there will have to be much more movement before any real impact to housing is felt, he said.
Also, the higher interest rate will affect credit card rates and car loans before it will affect home mortgages.
Long term, an increase in interest rates could make housing appreciate more quickly, Robertson said.
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