The Federal Reserve announced a rate hike at a Federal Open Market Committee (FOMC) meeting and press conference, which experts had expected for some time now. The Fed had voted to raise the benchmark fed-funds rate by a quarter percentage point, to a range of 0.75% to 1%. Federal Reserve head Janet Yellen had previously hinted at a rate hike.
Not all of those on the Fed's rate-setting committee voted to raise the rates. Wall Street Journal reports that Minneapolis Reserve President Neel Kashkari voted against the action, saying he preferred to hold rate steady for now.
Experts had weighed in on the effects this hike may have on mortgages, particularly adjustable-rate mortgages.
“On the adjustable rate mortgages, the nuance here is that people facing a reset on their adjustable rate loans are the most susceptible to these rate hikes, and the cumulative effects of these rate hikes,” said BankRate VP and CFA Greg McBride.
The Fed had already signaled three rate hikes this year, though McBride stated, “I only had them raising rates twice this year, which would put the fed funds rate at between one and one and a quarter percent.”
According to Fannie Mae, the rate increases are not expected to impact housing in any major way. "Today’s FOMC decision to increase the target rate and the updated Fed officials’ economic projections that continued to show a median of three hikes this year are in line with our expectations in the March forecast released earlier today," said Doug Duncan, Chief Economist at Fannie Mae. "We believe the Fed could stay on course to achieve its dual mandate with a gradual monetary normalization, which would allow housing to continue to expand. Given continued solid job growth and recent income gains, we believe this pace of rate increase will not derail the ongoing housing recovery."
"As anticipated, the FOMC went forward with the first rate hike of 2017," said National Association of Federally-Insured Credit Unions Chief Economist Curt Long. "Given that inflation is rising and approaching the Fed's 2 percent target, Fed officials had little choice but to raise rates.
The rising mortgage rate isn't expected to affect housing demand in spring, according to First American Chief Economist Mark Fleming.
“Reports have suggested, or surely will, that this rise in mortgage rates will be the demise of the housing market. That’s just not so," sid Fleming. “Yes, many existing homeowners will have a financial disincentive to sell because they would lose their lower than prevailing mortgage rates in doing so, the so-called rate lock-in effect. I have suggested that this is one of the reasons we see low inventories in most markets today, but it’s not as simple as that. We don’t act rationally. Even economists who, of all people, should know better.”
The FOMC had previously raised the federal funds target rate to a range of 0.5 to 0.75 percent last December.