Ever since the 2016 presidential election, mortgage rate payments have increased from 3.8% to 4.3% which adds thousands of dollars to the initial outlay of a home. Many Americans are uncertain of what is going to happen in the housing market if rates continue to increase. Are we already in the housing bubble? This fear is making families and mortgage brokers very nervous. Lenders and borrowers are in a difficult position as well. If the rates continue to increase borrowers may not be able to pay back the loan with the additional interest. Loaners such as banks like Wells Fargo might not be able to collect their full payments and will unfortunately have to seize assets such as homes and securities in order to liquidate them into cash.
As a result the cost of purchasing a home is becoming even more expensive. Thus young adults graduating from undergrad or graduate programs may want to continue living in apartments and condo's rather than renting and buying homes. Also international investment is more risky for the housing market because less interest rates are increasing substantially over a short periods. A Real estate brokerage firm called Redfin forecasts that rates will stay below 4% for short term house investments however, this is clearly not the case as we approach the end of the fourth quarter. If rates continue to increase, The Federal Reserve may have to raise borrowing cost at which local banks loan to families for house payments.
http://www.nytimes.com/2016/11/23/business/economy/mortgage-rates-rise-catches-home-buyers-and-lenders-off-guard.html?ref=business
If the fed raises interest rates, banks raise their prime rate, which in turn affects mortgage rates, car loans, business loans, and other consumer loans. It makes sense to rise the interest rate with the economy growing the way it is.
ReplyDeleteThe prospect for faster growth comes with faster inflation, and even though not a stitch of policy has been written, markets are preparing for what is likely to come in the months ahead. It's more about what they say about future policy. If the message is a soothing one, markets won't react very much. If it's a more aggressive tone, then you will see markets reposition for the next interest rate increase.
ReplyDeleteI think at this moment in time it is necessary for the Fed to raise interest rates. With the uncertainty of the housing market and the increase of mortgage rate payments, they might need to raise the rates to accommodate for the current changes in the economy and for the potential future of the economy.
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