Rising interest rates, and rising mortgage rates, mean that the economy is doing better. Even though rates have been increasing since hitting an all-time low in 2008, it’s important to stress to clients that rates continue to remain at historic lows.
The Fed last raised interest rates (for the first time in seven years) on December 15, 2015, which led to slower housing sales in January and February 2016. For anyone trying to buy a house at that time, there was a mad scramble to lock in a lower mortgage rate before a hike. The Fed also announced at that time that they would continue to gradually raise interest rates at a moderate pace that wouldn’t shock the economy or the housing market.
However, in June of 2016, the Fed’s policy-making committee concluded that it would not raise the benchmark interest rates, stating that any future increases would come at a slower rate. This would translate into a steady mortgage rate trend with little or no change. The Fed expected to see greater economic growth since the Great Recession. Instead, they stated their disappointment in the slow uptick in the economy. And while economic output of the economy as a whole has increased, recent job growth has slowed. Ironically, the mixed economic news gave the Fed pause, causing them to evaluate for another month before considering an interest rate increase.
No Third Quarter Increase in Interest Rates
Which brings us to July 27th, 2016 when the Fed met again to discuss whether or not to impose a greater increase on interest rates. This would mean going outside the typical 0.25 percent to 0.5 percent interest rate variable. Since meeting in June, they have changed their opinion on the economic outlook in the U.S., yet decided not to increase interest rates. They cited the unexpected strong job growth in June, as well as the continued increase in household spending, as reasons to keep their overnight interest rate target at 0.25 to 0.5 percent.
What Slowly Increasing Mortgage Rates Mean for Your Business
Slowly increasing interest rates mean that you and your clients have a better chance to buy and sell property now and in the future. The reason is that tiny, incremental interest rate increases are an indication of a healthier economy — and so consumers should be feeling more confident about buying or perhaps trading up.
It’s been almost a decade since the start of the Great Recession (December 2007) and the housing market is still recovering. Truly, rising mortgage rate trends are a good sign. Buyers can still lock in low interest rates, and homeowners will continue to have access to attractive financing for upgrades and remodels to their homes.
Many homeowners who have pre-recession mortgages will have better access to financing. That means they can invest in renovating their property so they can finally sell it and get out of their “bad” mortgage. It sounds counterintuitive, but incrementally rising mortgage interest rates are good for now — and for the long term.