- The Fed’s recent .25% rate increase directly affects the Prime Rate, which is now up to 3.5%. Virtually all Home Equity Lines of Credit are tied to Prime, meaning HELOC payments will be higher in January.
- On a positive note, the Fed’s rate increase is pushing savings rates up. However, expect credit card rates to push up, too.
This change comes in the wake of months of rising house prices, an unemployment rate that has now fallen to pre-recession levels, and the strongest housing market we have seen in years. Even with the rate hike, interest rates are still historically low.
- According to Zillow Real Estate research, the breakeven point when buying a home becomes financially better than renting a home after only 1.9 years.
- Also, according to Zillow, the average income needed to support a rent payment is at the highest level ever, whereas the income needed to purchase a home is near an all-time low.
The FOMC forecast that the appropriate rate at the end of 2016 would be 1.375%, implying at least four rate hikes next year.
It anticipates that the economy would evolve in a way that warrants gradual rate hikes. Now that the Fed has made the first move, the pace of future rate hikes would become the focus of markets going forward.
Posts
