What does The Federal Reserve Increase on Wednesday, December 14 mean for you?
On Wednesday, December 14th, the Federal Reserve raised the federal funds rate by 25 basis points from 0.5% to 0.75%. The confidence in the U.S. economy was caused by a strengthening labor market, a low rate of unemployment only expected to go further down in 2017, and inflation moving rapidly toward targeted levels. This is only the second time in the past decade that this has happened. It is anticipated by the Fed that there will be three rate hikes in 2017 instead of two, a change that reflects their increased anticipation of a strong U.S. market.
According to Fed Chairman Janet Yellen, “Our decision to raise rates should certainly be understood as a reflection of the confidence we have in the progress the economy has made and that it is expected to make.”
So what does this mean for potential home-buyers in Massachusetts, or really throughout the U.S.?
Now is the time to buy. Mortgage interest rates are still very low, but with this announcement and other increases predicted for 2017, your buying power as a consumer of real estate is only going to go down as the Mortgage rate goes up.
For example, the cost to finance $500,000 (before this announcement, 30-year fixed, 4.35%) was approximately $2,486 per month principle and interest. Since the rate increase on Wed. the average % has moved to 4.45% giving a buyer a cost of approximately $2,519 per month principle and interest. An increase of approximately $33 per month or $396 per year. With three more interest rate increases expected in 2017, one can expect these small bumps in the mortgages rates to add up to a bigger monthly cost number. If you can, buying now make “cents”.