The U.S. economy showed a significant improvement and this prompted the Federal Reserve to increase the Fed Fund rates to one quarter of a percentage point. The announcement was made last Wednesday. This came as no surprise to some economists since it has been almost a decade already that the rate was near zero.
The Federal Reserve System or known as "The Fed" was created by the Congress as a response to banking meltdown and the Great Depression during the 1930s was a big factor. This acts as a support system to banks as they give source of funds in order to maintain stability in the financial system.
According to Capital Gazette, The Fed is well aware about the standing of the economy when it comes to Gross Domestic Product and job gains. But then, The Fed decided that it is about time to make a small increase of at least 0.25 percent. They do believe that the economy is strong enough to handle such change.
It has been reported that the increase made was not about the concern for possible inflation. However, it is a preventive measure to take control so that the period of deflation will not happen.
With all these, one thing is clear, that the mortgage rate will also increase. According to Huffington Post, it is normal for the interest rates to boost up the moment that The Fed raises its main policy rate.
Reportedly, just a few hours after The Fed made the decision, big banking companies such as JPMorgan Chase as well as Wells Fargo also announced that they will increase the "prime rate."
Daily Herald shared that John Wake, a real estate agent from Arizona, believes that a lot of home buyers are scared that the increase of rate will prevent them from affording a house that is why they become impulsive in buying the property.
Wake said that "The real estate economy is more sensitive to interest rates than most of the economy."
He then added that "An interest rate low enough to move the needle on the national economy may cause the real estate economy to overheat. We may have seen a bit of that the last couple of years. And because real estate is more sensitive to interest rates, expectations of higher rates have a bigger impact on real estate than most of the economy."
Basically, when buyers expect for mortgage increase then they will already perceive it that way. And that is the reason why they get to "buy sooner rather than later, which could drive prices up even more next year, which is what I am worried about," says Wake.
However, The Fed is not worried that this can affect the home buying market and the whole buyer's behavior.
