In a previous report, it was said that skeptics thought the Federal Reserve was just bluffing when it announced that interest rates will be raised before the end of 2015. But even if many thought it was unlikely to happen, there was a growing concern that the rate hike would affect the housing sector. It was for a long time believed that nearly 0 percent interest rates has helped elevate the housing market. Svenja Gudell, Zillow's chief economist was then noted to have said, that hot market will cool off when interest rates increase and home prices appreciate slow.
The rate hike was not a bluff. According to BBC, Fed members agree unanimously to increase its key interest rate to somewhere between 0.25 percent and 0.5 percent and that is about 25 basis points where one base point is equivalent to 0.01 percent. According to the minutes of their December meeting, the gradual increases will be justified by economic conditions where inflation was one of many the concerns. Now many would like to know if the rate increase would have a great impact in real estate.
In a blog by VP and Chief Economist Sean Becketti at Freddie Mac, it was stated that for a number of reasons the housing sector should note that the rate hike would consequently raise mortgage rates, reduce affordability and stifle the growth of the housing market. One of the reasons is that the Federal Reserve is aware that economic recovery is in a fragile state and that is why increase will be very gradual so increments will be modest. It was also pointed out that the connection between longer term interest rates and short-term rates controlled by the Fed is weak. There have been several instances in the past, back in mid-2000s, that movements in interest rates did not affect mortgage rates.
