What Fed. Rate Hike Means

This rate, which is used when banks lend money to each other overnight, was held near zero to support economic recovery following “the worst financial crisis and recession since the Great Depression,” said Fed Chair Janet Yellen. The Fed upped the target rate range a quarter point, to between 0.25 and 0.5 percent.

According to Yellen, the move “recognizes the considerable progress that has been made toward restoring jobs, raising incomes and easing the economic hardship of millions of Americans.” The increase also reflects the Fed’s confidence that economic factors still lagging behind desired levels will continue to improve, especially inflation, manufacturing and new home construction.

November Housing Starts, for example, rose 10.5 percent from October, according to the Commerce Department. This was above expectations. The jump nearly erases the 12 percent decline from September to October. After months of significantly higher multifamily unit home starts, single-family home starts were up to the highest level since January 2008.

So how will the Fed’s actions impact home loan rates? The increase to the Fed Funds Rate does not directly impact long-term consumer loans like purchase or refinance home loans, so home loan rates will not necessarily increase as a direct result of the Fed’s actions.

However, it’s important keep a watchful eye on economic headlines. The economic conditions that made the Fed comfortable with a rate hike—coupled with expectations of a further strengthening economy—could amplify investments in Stocks, which could negatively impact Bonds. This includes Mortgage Bonds, to which home loan rates are tied.

For now, home loan rates remain attractive.

If you or someone you know has questions about the housing market, please don’t hesitate to contact me.