For the third time this year, the Federal Reserve has raised the short-term federal funds rate
“During its September meeting, the Federal Reserve decided to raise the short-term federal funds rate for the third time this year. Though expected, this action adds additional upward pressure to long-term rates. For example, the 10-year Treasury yield has increased from 3.1% to above 3.2% in the past two weeks. The average 30-year mortgage interest rate now stands above 4.7%. Though higher interest rates are a sign of healthy economic conditions, they do represent a concern for housing.
On the plus side of the economic ledger, consumer confidence is at an 18-year high, incomes continue to rise and unemployment has fallen to an almost 50-year low at 3.7%. Moreover, home builders and remodelers have added almost 140,000 jobs in the residential construction sector over the last 12 months.
However, sales data for housing continues to be soft. For example, the NAR Pending Home Sales Index declined in August and was 2.3% lower than a year ago. This data, along with the rising cost of buying a home with a mortgage, are consistent with NAHB’s forecast of a flat-to-declining resale market and a slowing of home-price growth over the near term.”
–NAHB Chief Economist Robert Dietz