Why The Fed's Interest Rate Rise Isn't Necessarily Bad News for Mortgage Rates

It's finally happened!

This morning's announcement of a .25% interest rate rise, the first since 2006, will naturally be of concern for everyone with a vested interest in the real estate industry.

The key point to emphasize is that, despite a lot of industry comment to the contrary in recent months, mortgage rates will not necessarily follow interest rates on an upward trend.

Indeed it's quite possible that rates will fall even further!

If we look back at the trail of events leading up to the last Fed interest rate hike nine years ago, on several occasions a Fed Funds Rate rise was met with an actual fall in mortgage rates.

Mortgage rates are more closely allied to bond market prices and inflation and the relationship with Fed interest rates is nowhere near as direct.

Even in the lead up to the Fed announcement today, rates have generally been on a downward trend in recent weeks, as a range of other more direct influences on the attractiveness of investing in Mortgage Backed Securities (MBS) have held sway.

The other important consideration is that the Fed has, to say the least, taken its time in making this decision, which has been widely expected for some considerable time now. Stocks have been rising since the announcement, as sufficient confidence within the Fed to make the leap says a lot about how far the economy has recovered, after the years of recession.

With widespread predictions for the best real estate market in 2016 since 2006, everything is still on course for continued prosperity in the home purchasing arena. Today's rates rise is, in many respects, a ringing endorsement of that forecast.

As always, please do not hesitate to contact us if you have any specific questions.

Dominic Nicoli