Federal Reserve Raises Interest Rates

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Yesterday, the Federal Reserve announced that it would raise interest rates by one quarter of one percent, or 25 basis points. MBA’s economists have long forecasted that the Fed would make this move, and at least three more rate increases in 2017. Chair Yellen said yesterday that she indeed expects the Fed to make three more rake hikes in 2017, and three more each in 2018 and 2019, respectively.

While the well-anticipated 25 basis point increase announced yesterday had only a small impact on debt markets, it’s definitely the beginning of a new era of the post-crisis housing economy, and the end of the era of artificially low rates.

What does this mean for the housing market? Mortgage rates have climbed since the election and will likely continue upwards following the Fed’s announcement.  MBA has adjusted its forecasted path of interest rates upwards slightly in its December forecast, and we expect that refi activity will continue to fall during 2017.  However, we also expect that purchase activity will be robust, backed by the strength of the job market.

On the commercial real estate side, the end of the era of ultra-low rates means that borrowers who have not locked-in long-term, fixed rate financing will want to be vigilant about how both short- and long-term rates move going forward. But the strong fundamentals of the commercial and multifamily real estate market are expected to support continued growth in 2017.