People should not let the Federal Reserve's expected decision to raise its benchmark rate in the coming months exert too much influence over their decision-making when it comes to residential real estate properties.
McLean, VA -- (ReleaseWire) -- 06/21/2016 --The Federal Reserve will not be raising the federal funds rate in June because of lackluster job creation last month. This is a reversal from more positive sentiments expressed before the jobs data came out. Given the connection between the federal funds rate and other interest rates such as U.S. mortgage rates, it is unsurprising that residential real estate consumers are paying close attention to the Fed's pronouncements. However, a strong case can be made that the extent of the federal funds rate's influence on U.S. mortgage rates is exaggerated.
First, it is important to note that the Federal Reserve is supposed to set the federal funds rate in order to promote the economic well-being of the United States. As a result, it would of course not increase the federal funds rate were that to cause a recession. Thus, its stated intention to do so sometime in the near future is a sign of its confidence in the U.S. economy. And since a strong U.S. economy tends to mean a strong U.S. housing market as well, real estate consumers should not let the prospect of rising interest rates unduly concern them.
Second, even if the Federal Reserve proceeds to raise its benchmark rate, the expected impact on the U.S. housing market may well be limited. In part, this is because the current Federal Reserve is not the Federal Reserve of the 90's under Alan Greenspan, which was willing to raise the federal funds rate by entire percentage points at a time. Today's Federal Reserve is much more cautious, which in turn, means less movement for interest rates.
Furthermore, statistics comparing the federal funds rate and U.S. mortgage rates do not show a perfect correlation between them. For example, when the Federal Reserve raised the federal funds rate between mid 2004 and mid 2005, the average 30-year fixed mortgage actually fell from 6.3 percent to 5.58 percent. Furthermore, Doug Duncan, chief economist at Fannie Mae, stated in December of 2015 that even if the Federal Reserve raised the federal funds rate by a full percentage point in 2016, the average 30-year mortgage is estimated to rise from 3.9 percent to 4.1 percent, which is a relatively minor change.
As a result, those seeking to to either buy or sell residential real estate should not let the Federal Reserve's possible increase in its interest rate in 2016 play too much of a role in their decision-making. Whether they need to buy a new home to fit a growing family or they need to sell their home because they are planning to move, consumers should expect only a minor increase in the federal funds rate. This should translate into only a small increase in mortgage interest rates, if any. To keep up-to-date on future developments, interested individuals should seek out both a qualified mortgage professional for an appropriate loan product as well as a skilled and experienced real estate agent such as John Seggerman to assist with real estate transactions.
About John Seggerman
John Seggerman is a leading innovator in the real estate industry. He writes about informative tips his clients need in an ever changing housing market. His valuable insight has helped to save his clients' money and time in their home purchases and sales. For more information, visit www.johnseggerman.com.