Local financial and real estate industry professionals are reacting with cautious optimism to the Federal Reserve having raised its benchmark interest rate by 0.25 percent last week.
Calling it “expected” and “conservative,” most expected very little impact to individuals and small businesses in the Greater Lehigh Valley. Instead, the professionals are focusing on the Fed’s indication that more small increases may be ahead in 2017 – a sign of confidence in the nation’s economy.
“Directly, the impact to investors is modest at best,” said Nick Boyer, chief investment strategist at RKL Wealth Management in Wyomissing.
He noted that the stock market was already up in anticipation of the expected hike, which shows the Fed’s rate increase strategy is getting its message across to investors.
He said the most important part of the recent hike is the indication that the Fed is looking to have three or four interest rate hikes in 2017, likely at the same 0.25 percent rate, which shows a slow and steady growth.
“Graduality is a word I’ve heard used by pundits,” Boyer said. “The increase in interest rates is gradual, but they’re indicating that they’ll continue.”
INVENTORY, NOT RATES
Inventory, and not interest rates, is the biggest factor affecting the region’s housing market, said Justin Porembo, CEO of Greater Lehigh Valley Realtors.
He said the hike announced last week is not likely to have a strong impact on home buying because many mortgage lenders already had slight upticks in rates in anticipation of the increase and those expected later this year.
He also noted that mortgage rates are influenced by many factors and not just the short-term rate the Fed just raised, and called the rate increase part of an ongoing trend.
“The years of the ultra-low interest rate are pretty much over,” Porembo said.
CREDIT COULD LOOSEN
But the rising rates are a good thing.
Porembo said increasing interest rates are a sign of an improving economy. That will mean more jobs and more people with the money to enter the housing market for the first time.
“I also see credit opening up for potential new homeowners,” he said.
Meanwhile, he thinks the rate hike, and the hikes that may be forthcoming, won’t be enough to push anyone out of the home buying market.
SAVINGS RATE INCREASE
Just like residential mortgage rates gradually are trending upward, Gary Moyer, executive vice president and chief lending officer for Tompkins VIST Bank in Wyomissing, said interest rates on savings and checking accounts should also start to see a gradual rise.
“I think that’s coming,” Moyer said. “Published interest rates haven’t gone up much. We see signs that’s going to change, but that’s just starting to gain momentum.”
He noted that bank officials meet regularly to evaluate the interest rates paid on savings and checking accounts, and while margins have been tight for most banks, he anticipates most banks will review rates and consider modest increases.
HIGHER LOAN PAYMENTS
While increases may be small and steady, Moyer noted they will add up over time.
If the Fed, for example, raises the interest rate by 0.25 percent four times this year – which is a possibility – that would mean a full point increase of a rate that influences most other rates.
He said he sees that has having a larger impact not so much on savings accounts, but on longer term loans where a payment might jump from $1,000 per month to $1,100 a month, for example.
That, he said, could impact some people’s ability to borrow.