More Interest Rate Hikes Likely
A: Unemployment rate hit the lowest level since 2001 as employers added 193,000 jobs in January. In addition, Hourly Wages rose 7 cents to $16.41, a 0.4 percent increase that suprised analysts who were expecting a 0.3 percent rise. Story.
What does this all mean for housing? Everything! As the economy gets stronger via more jobs created and higher wages, the Fed and new chief Ben Bernanke has to take on a tightening stance with interest rates to make sure the economy doesn't grow too fast too quickly. So what is he to do? Raise rates!
To combat inflation indicators such as the price of gold and oil, and to thwart off a growing economy in terms of unemployment and hourly wages, the fed is likely to raise rates 1 more time to cool things down.
In my last post on the latest 1/4 point rate hike by Greenspan in what was his last meeting as fed chief, I estimated the chances of another rate hike at about 50/50. I would revise that consensus upward now, leaning more towards another rate hike at the next fed meeting; the first for Ben Bernanke.
By pushing rates higher one more time, the feds funds rate will hit 4.75% which will result in lending rates rising across the board. It won't happen right away, as it usually takes a few weeks for the rate hike to funnel down to mortgage rates. But with another rate hike bringing the fed funds rate to 4.75% looking more likely, it will put more pressure on the housing markets as money gets more expensive to borrow for future homebuyers.
The ripple effect of rising interest rates on housing is simple to deduce:
Rates Rise ---> Borrowing Costs Become More Expensive ---> Housing Get Less Affordable ---> Asking Prices Come Down To Compensate
~ Unemployment rate lowest since 2001
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