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What does the Fed’s rate increase mean for housing after so many years without one?

Interest rates are gradually going back up, which confirms that unemployment is low, gas prices are low, debt is low and wages are picking up. In other words, things are looking up.

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U.S. economy is up and so are interest rates

The Federal Reserve recently raised interest rates. On the surface it may seem like one of those good news/bad news scenarios but actually the move is a vote of confidence in the U.S. economy. Think back a few years (those of you who are old enough) to 2008 when the Federal Reserve cut rates to near zero in an effort to boost housing, consumer spending and the rest of the economy.

Now with interest rates gradually going back up it confirms that unemployment is low, gas prices are low, debt is low and wages are picking up. In other words, things are looking up.

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Economy still slow

According to the real estate web blog fivethirtyeight.com, “the potential GDP growth was around 2 percent when the Fed last changed rates, in December 2008. Fast-forward to 2015 and potential growth is a notch lower, at 1.75 percent. If the economy continues to grow, that rate will move higher, eventually hit a plateau around 2.25 percent in 2020, before beginning to decline again.”

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Redfin.com points out that, as expected, ultra-low rates have led to a noticeable rise in debt in several areas. The one that may garner the most interest is housing.

Housing ping-pong

Home prices have made a nice rebound but industry experts say the recovery still falls short of pre-crash levels. Comments Federal Reserve Chair Janet Yellen, ““Housing has been recovering very slowly, but the demographics would point to significant upside. As such, adds Yellen, there’s not much evidence for a nationwide housing bubble at present. That said, for buyers, loans eventually will get more expensive. It won’t happen any time soon but rates will go up.

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There are those that feel that this is a completely unnecessary increase and that what’s needed is fiscal policy action, not a counterproductive monetary policy.

#RaisedRates

Written By

Nearly three decades living and working all over the world as a radio and television broadcast journalist in the United States Air Force, Staff Writer, Gary Picariello is now retired from the military and is focused on his writing career.

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