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Federal Reserve Raises Interest Rate

Janet YellenConsidering buying or selling your Santa Barbara area home? Act now!

We knew the Federal Reserve would raise interest rates, but do you know how the raise will affect you? According to the Los Angeles Times, the Fed’s decision to lift its benchmark short-term interest rate by a quarter percentage point is likely to have a domino effect across the economy. The hike will gradually push up rates for everything from mortgages and credit cards, to small business loans.
It all stems from President-elect Donald Trump’s plan to cut taxes and spend up to $1 trillion to upgrade infrastructure, combined with forecasts of rising oil prices, inflation and long-term bond yields. Some analysts speculated that Fed officials also could indicate a faster pace of rate hikes this year and next.
“Fiscal policy may have a bigger say” than Fed interest rate decisions, says John Canally, chief economic strategist for LPL Financial. That would mark a shift from prior years, when Fed action had an outsized effect on a slowly growing economy.
Still, the Fed’s decision to lift the federal funds rate, which is what banks charge each other for overnight loans, could have at least some effects on consumers.
The Fed’s key short-term rate affects mortgages and other long-term rates only indirectly. Wednesday’s anticipated hike was priced into such mortgage rates, but three more quarter-point rate bumps next year could lift mortgage rates by a total of an additional 3/8 of a point. That would mean an additional $44 a month in payments on a $200,000 mortgage.
Now here’s the good news for those considering selling: Fed officials stressed that even with the increase, interest rates remain low enough to support “some further strengthening in labor market conditions and a sustained return to 2% inflation.” Plus, here in Santa Barbara, tight inventory continues to push home prices higher; making this the perfect time to list your home, too.
Whether you are considering buying or selling your home in Montecito, Hope Ranch or any of Santa Barbara’s upscale communities, I suggest you act now. The Fed still plans to raise mortgage rates at least four times in 2016. Just call me at 805.886.9378 or email me at and let’s get moving on buying or selling while mortgage rates continue to improve.

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