Historic Day! The Fed Raises U.S. Interest Rates After Nearly a Decade

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After nearly a decade of multiple quantitative easing (QE) policies and measures, today the U.S. Federal Reserve finally reverse their longstanding position on monetary policy and raised interest rates for the first time since June 2006.
 
The Fed's 'liftoff' of rates today could have significant implications for the entire banking, finance and housing industry across the U.S. in the coming years after nearly a decade of near zero interest rates from the Fed.
 
Reaction from Fed chairman Janet Yellen's rate hike from the U.S. housing industry was mixed.
 
Lawrence Yun, chief economist for the National Association of Realtors tells World Property Journal, "The 30-year fixed mortgage rate may hit 4.7 percent by the end of next year and then likely move up further to hit 5.5 to 6.0 percent in two to three years.
 
Yun continues, "The overall impact of today's likely decision will be minimal. However, the upcoming cycle of more rate hikes starting next year looks to have more of an impact on mortgage rates than in the past simply because the mortgage rates are already starting from unimaginable levels."
 
"Existing-home sales are likely only to grow near 4 percent next year - in part because of continued tight inventory and a slight decline in affordability because of rising prices and mortgage rates", concluded Yun.
 
JLL's global capital markets research director, David Green Morgan said, "Economically, the US is well ahead of much of the rest of the world and it is domestic US economic performance that is driving this decision.  Much has been made around the timing of this first upward movement in rates but real estate investors will be more interested in the frequency and size of any future increases in 2016.  This first move is as much psychological as it is financial and should be seen as a sign of strength and confidence in the US economy. As we come closer to the end of this accommodative credit cycle in the US so we are entering a period where market expectations need to adjust. We've had cheap borrowing for more than five years so any increase will seem significant but the reality is that this rise is already reflected in a lot of the financing available on the market so it shouldn't have a material impact on the ongoing cost of debt in the US.

"The real impact is going to be on the mind-set and motivation of investors. No longer will reducing rents be enough to attract tenants. The wider market lift we have witnessed in the last few years is evaporating and there must be a greater focus on asset management; manage your building better than the one down the road and you will attract more profitable tenants, and invest for income rather than capital values at this point in the cycle.

"There will no doubt be a period of increased volatility, particularly in emerging markets, but this should moderate as we move into 2016 as markets become used to the change in USD monetary conditions.  We should remember that most of the other central banks around the world are continuing to ease monetary conditions, so global liquidity is at little risk from this rate rise.

"We live in a world of cycles and that this cycle will come to an end but at this stage JLL doesn't anticipate it to be a catastrophic end. The economic fundamental numbers look good across the world's ten major real estate markets and the common thread tying them together now is improving the tenant profiles and rental growth; this is where savvy investors will focus their attention."

On the international front, the Fed's rate hike decision today is being monitored and watched.

Andrew Burrell, head of forecasting for JLL EMEA also commented, "This hike in US interest rates marks a significant turning point in the current economic cycle but it shouldn't unduly worry investors. The Fed is clear that this is not the start of an aggressive tightening, but that future interest rate movements will be gradual and cautious.

"Europe's economic recovery over the last 12 months has been broad-based, and sustained by domestic demand, making it more resilient to external influences. The Fed's move will have limited impact on growth in the Eurozone which is set to continue strongly over the next two years. This will help sustain the revival in occupier activity and office take-up that has been seen over recent quarters. Property will remain highly attractive relative to other assets because there is more demand than supply and this is reflected in increasing rental growth."

The Fed's rate hike will affect U.S. consumers in multiple ways according to a report by Bank of America. These changes include:
 

• Increased mortgage payments

• Car loan payments increase

• Credit card rates go up

• Student loans cost more

• Savings rates go up