Posted date: Jan. 6th, 2016
On December 16th the Federal reserve raised the interest rate from 0.25% to 0.5%. What impact will this have on the Boston real estate market in 2016?
Once concern is that the rate hike will lead to a slowdown in the housing market. This is a logical concern because the increase leads to mortgage rate increases too. Not as many can afford homes as the mortgage payment swill go up monthly which price many out of the market.
Despite the hike, it’s believed that this hike or any new ones in 2016 won’t have much of an impact on Boston housing prices. To understand why there won’t be an impact you have to understand what the rate hike actually means to you.
The Fed raises interest rates to avoid inflation which is usually by an overheated economy. The economy has expanded and growth has bene picking up pace. If the fed increases rates, this means that they see some economic growth. With a better economy there’s more employment and more income to spend.
The economic climate in the Boston area has been outperforming the national average. In Boston the Bureau of Labor Statistics estimates that the unemployment rate is as low as 3.7% while the rest of the country is at 4.7%. There are more people earning money and working. A rate hike means that the economy is growing and this will lower unemployment and bring higher wages to those that are working.
In 2016, the Fed is expected to make more interest rate hikes, but it probably won’t be too aggressive. There’s a slower economy in Europe, poor oil process, and the Chinese economy is also weak. The U.S. dollar is also gaining strength so the Fed has to take all of this into consideration if it plans to raise rates more. An increase in rates will hurt the U.S. economic trading partners.
Boston real estate won’t be impacted by interest rates because there’s not a lot of housing inventory in the area. In 2015, the demand for homes outstripped the actual supply. There will be more homes coming onto the market in 2016, but there will be a shortage and this will increase the prices.
An increase in income, tight housing inventory, and high rents will bring added costs to home buyers with higher mortgage rates. The rate increase won’t impact the Boston housing prices that much as they will remain strong throughout 2016.