News
March 23 Fed interest rate increase
30/03/2005
March 23 – The Federal Reserve Tuesday raised interest rates again, boosting the federal funds rate by a quarter percentage point to 2.75%.
While the mortgage markets already increased their rates anticipating the Fed action, similar increases throughout the year could impact real estate sales.
"We see the Federal Reserve continuing to raise rates for the next five meetings," says Lawrence Yun, senior economist for the National Association of Realtors. "The cycle … will slowly impact the mortgage rates."
Yun says that the 30-year fixed mortgage for US residents – now 6 percent (average) -- will be 6.7 percent by year's end.
Yun is also predicting that US residential sales will decline 3 percent for 2005 as a whole. This comes off of four record years.
There will also be a slowing in price growth. Throughout the US price appreciation in 2004 on avereage was 9 percent. It will be between 5 and 5.5 percent in 2005, according to Yun.
Amy Crews Cutts, deputy chief economist for Freddie Mac, said house price appreciation for existing houses was 10.7 percent in 2004, but will be 8 percent in 2005.
"That's still in pretty darn healthy territory," Cutts says.
But she also urged consumers to pay close attention to their ability to make mortgage payments in the future.
"Ask lots of questions of everyone involved in the transaction," she urges buyers. "Ask before you sign."
Lynn Reaser, chief economist of the Investment Strategies Group, at the Bank of America, said that the Fed indicated that rate increases are likely to continue to be "measured" or gradual but that inflation is becoming a greater concern to them.
Policymakers perceive economic growth as solid, including a gradual improvement in the labor market. They also see long-term inflationary expectations as well contained and have seen little feed-through of rising energy costs into underlying inflation.
Nevertheless, they pointed to a building of inflationary pressures (presumably including increasing commodity costs, a weaker dollar, and slowing productivity growth) together with signs that more firms are exercising pricing power.