Interest Rates: 2016 How High Will They Rise?

It’s anyone’s guess where interest rates will go this year, but if you’re in the market to buy or sell a home, you might want to act fast to ensure you snag the lowest rates.

Interest Rates 2016

As a seller, the quicker you list your home for sale, the sooner buyers can buy it and secure mortgage dollars at a lower interest rate. The quicker a seller lists, the bigger the buyer pool will be while interest rates are low.

As a buyer, the uncertainty of interest rates can change your buying plans quickly. Just know that for every 1% rise in interest rates, buyers lose about 13% of their buying power. Time is of the essence to buy the home of your dreams this year.

Interest Rates

Interest Rates Matter

Kiplinger reports that the Federal Reserve wants to raise rates, but we expect that moderate growth and uncertainties overseas will hold it to two increases this year instead of four. While the Federal Open Market Committee statement this week left open the possibility of a March rate hike by citing continued labor market improvement, the Fed is also deathly afraid of having to rescind a rate hike if it moves too early, which would hurt its credibility. Given the current economic uncertainties, expect the Fed’s first increase at its June 15 meeting. The next important information about Fed intentions will come during Chair Janet Yellen’s congressional testimony on February 10 and 11.

By the end of 2016, the 10-year Treasury bond rate should be 2.6%, versus 1.9% now, with the 30-year mortgage rate at 4.3%, from 3.8%.

Eventually, the Fed will realize that it’s not getting very far in “normalizing” short-term interest rates back to the 3% level, and it will likely pick up the pace in 2017, once it appears safe to do so. Also, tightness in the labor market in the form of very low unemployment and the beginnings of wage pressures will lead the Fed to worry a bit about potential inflationary pressures. The inflation measures the Fed watches should rise as the economic expansion continues.

Interest Rates Predictions

The prediction had been for a rise in December 2016 or January 2017 for the UK Bank Rate, following the first rate rise in the US for nine years, in December. But fresh global economic gloom in 2016 and the comments of the Monetary Policy Committee (January 14) shifted opinion. Now money markets imply that the first increase will come in August 2018.

In the summer, a rate rise was considered likely by the end of 2015.

Hargeaves Lansdown pointed out that markets are now pricing in a 33% chance of a rate CUT this year.

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Brought to you by: Luxury Valley Homes Winfield Real Estate Arizona Team