In an article published by USA Today on March 15th, the obvious is stated plainly: “The Federal Reserve decision Wednesday to lift its benchmark short-term interest rate by a quarter percentage point is likely to have a domino effect across the economy as it gradually pushes up rates for everything from mortgages and credit card rates to small business loans.” You can read the full article here.

An improving economy, lower unemployment, and slight inflation are finally pushing interest rates up, and as the article states, it will affect the housing market, mortgages and potential homeowners.

Inventory and Construction 2017

2016 was a strange year for real estate.  Mortgage rates were still relatively low, but new home construction never really seemed to realize its full potential.  Add to that stagnant wages, a GDP only slightly over 1%, and the regulatory nightmare of the Dodd Frank Act and you had a year that seemed to take a page from The Twilight Zone.  With 2016 in our rear view, what does 2017 hold for the housing market?

The 2017 housing market predictions are a mixed bag. Home appreciation is expected to continue to increase, although more slowly than 2016, supply from existing homes and new construction is expected to increase but remain rather short, and policy uncertainty associated with an anticipated major tax overhaul.  This forecast portends a market with slightly lagging supplies and a potentially hesitant buyer on the sidelines.

Mortgage Market Forecast

The rate hike on Wednesday may only be the beginning and should you be in the market for obtaining a mortgage, future increases from the Fed will affect mortgage options and monthly payments.  The forecast for future rate hikes seems to lean more toward upward movement throughout the rest of 2017.

Federal Reserve reasoning is based on positive consumer sentiment, increased household spending, and the pro-business environment of our current administration.  Their initial outlook for 2017 indicates strong job growth, increasing wages and an uptick in inflation.

Forecast for Potential Homeowners

For consumers already participating in the mortgage market, the Fed hike should have only a minimal impact, if any at all.  A rate hike had been anticipated, as reflected in the fact that mortgage rates have already edged over the 4% mark, up at least a half-percentage point from the same time last year.

But for potential homeowners and for those only beginning their mortgage search, look for rates to continue their upward trend.  How much and how quickly will depend on the continued health of our economy, the available inventory of homes for sale, future home construction and the Federal Reserve’s future monetary policy.

Fixed rate mortgages, although expected to see slight increases, should not experience greater stability than might accompany adjustable rate mortgages.  Much of the anticipated rate hikes from the Federal Reserve will be “an already baked in” factor for consumers choosing a 10-, 20-, or 30-year fixed rate.  On the other hand, adjustable rate mortgages are typically adjusted annually.  The continued hikes of 2017 may create uncertainty for homeowners facing an adjustment in future years.

The most positive note is that The 2017 mortgage market is expected to see the most activity since the devastating bust of 2007-2008, spurred by Millennials who may finally be prepared to enter the market.

In summary, housing appreciation is on the uptick, availability will be steady, and although rising interest rates will affect credit availability, a healthier, more robust economy should create an environment conducive to home ownership.

For the prospective homeowner, the time to act may have arrived.