The cost of borrowing money just got more expensive.
After almost exactly a year of anticipation (and many months of Chicken Little-ing around saying that rates will be rising), the Fed has finally raised the key interest rate a quarter percent from 0.5 percent to 0.75 percent—which was not a surprise at all.
What was a surprise, though, was a new projection that there will be three, not two, additional key interest rate increases coming down the rails in 2017. So now that Chicken Little can finally sit back and take a break, let’s see what market experts are predicting for 2017.
Comic provided by SoftVu
Prediction: Mortgage rates will increase, but not too much
Following the announcement of the key interest rate hike, mortgage lending rates across the board quickly surged to the highest levels they’ve been in two years—up to 4.25-4.375 percent for a 30-year conventional mortgage. But remember, rates always shift exponentially after a large announcement of any sort, at least for the short term. Don’t expect this rapid rise to be a continuing trend. In fact, Redfin predicts that mortgage rates will only rise to 4.3 percent in 2017.
Prediction: New home construction will be more costly and less available
The higher cost of borrowing money (plus the possibility of new, tighter immigration policies) are causing experts to speculate that building costs for new houses will increase, causing the level of new home construction to fall in 2017.
Prediction: Demand won’t drop because of rising rates
Rising mortgage interest rates won’t be enough to stop people from wanting to buy homes. Rents are expected to rise yet again in the upcoming year, making a mortgage payment look better and better to would-be homebuyers. Home prices are expected to rise, but not so quickly that they’ll become unaffordable—making buyers believe that homeownership is a good investment. The economy is also expected to grow, meaning there will be more money in everyone’s pockets. In short, everything is falling in place for a very strong year for the mortgage and homeownership market—even with rising interest rates.
There has been quite a bit of uncertainty swirling around the past few months. However, now that the key interest rate hike occurred and we’re gearing up for a political changing of the guard, we at least know that, finally, something is happening. And at the moment, we’re cautiously predicting that 2017 will end up being a banner year for our market.
At the very least…it will be interesting.