Business & Government

Fed Interest Rate Hike Could Be Good News For Some Markets: Real Estate Center Economist

The Federal Reserve’s increase in its key interest rate could have different impacts on different markets.
December 15, 2016

the Federal Reserve buildingThe Federal Reserve’s increase in its key interest rate could have different — in some cases positive — impacts on different markets, notes the chief economist at the Real Estate Center at Texas A&M University.

“We could see some fallout in the housing market, but the immediate short-term impact on the housing market could be an increase in demand,” explains James Gaines, who heads the Real Estate Center’s economic research initiatives. “People who are on the fence about buying a home might anticipate rates, as well as prices, going up in the next six to 12 months. This might give them the push they need to buy now.”

The increase, which was announced Wednesday, raised the key interest rate by 0.25 percent to a range of 0.50 and 0.75 percent. That increase marks only the second in a decade, and the Fed said it expects three more rate increases in 2017.

Gaines points out mortgage interest rates have already gone up at least 40 basis points in just the last 30 or 40 days. The current reported 30-year, fixed-rate mortgage is about 4.3 percent. During the course of the past year, it had bottomed out at about 3.3 percent, so on a total basis it’s up about 100 basis points from its low point during the past year.

“We expect to see more,” he adds. “The expectations in the market for the coming year are that interest rates will trend upward. At what rate, though, we’re not sure.”

Gaines says the rate increase could be “somewhat good news” for investors.

“People who count on interest return on investments and retirement savings and so forth have been getting virtually no interest at all on their savings for the past six or seven years,” he adds. “In the coming year, they might see some slight increases in interest rates on things like bank savings rates and certificates, and deposits.”

On the other hand, Gaines notes the increases may not be enough yet to make a big difference.

He says the other thing to consider is what the rate increase means in the global capital market.

“Our 10-year treasury is now bordering at 2.6 percent, which is a very appealing rate to other countries that might have invested funds or might have investible funds and capital to place somewhere,” he observes. “It’s ironic that raising the rates could actually create demand for our bonds that should, theoretically, react to lowering the rates.”

The Fed last raised rates in December 2015.

Media contact:

Related Stories

Recent Stories