How Will the Fed’s Recent Interest Rate Hike Affect the Housing Market in 2016?

Since 2008, the Federal Reserve has kept a zero interest rate policy in place.  But on Wednesday, December 16, 2015 they voted to increase the benchmark short-term interest rate by 25 basis points.  The Federal Reserve made it clear that they will be issuing a gradual tightening cycle over the coming months.  This likely means mortgage rates will inch slowly upward.

Most economists are predicting that this plan shouldn't unnerve the housing recovery, as the interest rate is still low compared to historical standards.  In fact many economists feel that this uptick could actually stimulate the economy as it provides a signal that the economy is strengthening.

Economists are predicting the Federal Reserve will raise short-term rates approximately four times by the end of 2016.  According to Realtor.com®’s 2016 forecast, the 30-year fixed-rate mortgage will likely average 4.65 percent by the end of next year.  Last week, it averaged 3.93 percent, according to Freddie Mac.  This news may also stimulate the housing market as it is expected to influence “fence sitting” buyers and sellers to act quickly before mortgage interest rates get much higher.

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