Most of us knew this was coming but it's finally official. The Federal Reserve met this week and announced that they were raising the Federal Funds Rate to .25%. This move has been widely anticipated so there shouldn't be much change to the mortgage rates. Investors had priced in a .25% increase over the past few days. If the Fed had elected to wait or to increase it by more, we would have seen an immediate rate change. This was the first rate increase in almost 10 years.
What does this mean? The Fed announced that they are watching the economy and they expect to keep rates low for at least the next two quarters. They feel the economy has expanded at a moderate pace over the past six weeks and housing has also improved. The pace of job gains has also helped in the labor market. So now we watch to see what investors do with this news and if rates will bounce up a bit more or if this was enough for now. With the holidays coming, it doesn't take much in the market to see rates swing as there aren't as many investors in their offices. The December employment report will sway rates when it comes out in the beginning of January.
Additional rate hikes are likely in 2016, it will depend on how the economy reacts. Right now the Fed believes the job market is improving and business investment is growing. They will use the Federal Funds rate to control inflation and help the economy move at a good pace.
So for those thinking about buying a home, rates are good now, expect that we will see rates increase in 2016 – but not at a huge rate. This is a great time to buy – home prices are good and so are rates. The longer you wait, the less buying power you may have.