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Andy Alexander: Home Building Could Temper Interest-Rate Hikes

The Federal Open Market Committee issued a press release last week announcing the rise of short-term interest rates.

As the labor market continues to strengthen and with economic activity on the rise, the FOMC has decided to raise the target range for the federal funds rate to 1-1/2 to 1-3/4 percent.

The rate hike comes in response to the solid job gains in recent months while unemployment continues to stay low.

In response to the FOMC statement, NAR Chief Economist Lawrence Yun said, “We are in the middle innings of monetary policy normalization. Interest rates that the Fed directly controls – the federal funds rate – were raised three times in 2017. Today’s action is the first of three rate hikes in 2018.

"Another three hikes are likely on deck in 2019. Mortgage rates do not move one-to-one with the Fed tightening, but clearly consumers should anticipate higher mortgage rates as time proceeds."

"The tight labor market will hurry-along the Fed to raise rates. Housing costs are also rising solidly and contributing to faster inflation.

"The one thing that could slow the pace of rate increases would be to tame housing costs through an increased supply of new homes. Not only will more home construction lead to a slower pace of rate hikes, it will also lead to faster economic growth.

"Let’s put greater focus on boosting home construction.” 

— Andy Alexander is a licensed real estate broker with Santa Barbara Brokers and the 2018 president of the Santa Barbara Association of Realtors. The opinions expressed are his own.

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