As many know by now, the Federal Reserve recently raised the Fed Funds rate by 25 basis points. Although this is not directly linked to increasing mortgage rates, many fear this will lead to just that. Higher mortgage rates typically leads to a negative impact on home affordability with fears of it derailing the housing recovery entirely. One person disagrees. Rick Sharga has written a commentary in HousingWire, Why rising Federal Funds rates might be good for the housing market, detailing out his reasons why the increase in the Federal Funds rate may be good for the housing industry.
First, there are two more rate increases expected this year. This may drive many off the fence early in the year and into the housing market before rates increase more, stimulating the economy.
Second, increasing rates forces lenders to loosen lending standards to get more borrowers approved. There are fewer refinances available in this type of rate environment so lenders will try and bring in more purchases. The higher mortgage rates will allow lenders a bit more cushion to take on more risk.
Finally, the 25 basis point increase is much less than the 75 to 100 basis point increase that analysts were expecting. This will most likely cause the rate increase to have a less significant impact on mortgage rates. With these predictions, we could see the strongest spring-selling season in years.