On the House: Fed's rate increase will have little effect on market

There are days when we lose our capacity for telling the difference between hype and reality.

The day the Federal Reserve raised its funds rate to a quarter of a percentage point, from zero, was one of those.

I had an annual doctor's visit and had taken a sick day, though it also involved two Town by Town visits for future articles and a telephone interview.

As I waited for the doctor, I trolled the Internet for any news about the expected Fed decision. I was greeted with gloom-and-doom headlines about the impact of the increase on 2016 home sales.

At the same time, we were in the middle of a warm spell, but weather forecasters were anticipating the arrival of a strong cold front, followed by a day or two of more seasonal temperatures in the 40s.

My iPhone weather apps were unanimous that the long-term forecast showed a quick return to warm weather.

The TV weather hypers, however, made it sound as if the change would be permanent.

In both cases, hype was outpacing reality. The weather would again be warm, and the Fed funds rate increase would have only minimal effect on the housing market, if at all.

In the case of the Fed's action, the decision to actually charge even a quarter of a percentage point for overnight interbank lending has little impact on fixed mortgage rates, and just a bit more on adjustable mortgage rates.

Yet the insistence that the rate increase would spell gloom for a still-wobbly housing market made me double-check with the usual suspects.

"There should be minimal impact on the rate for a 30-year fixed-rate loan," said Mark Zandi, chief economist at Moody's Analytics in West Chester.

"Fixed rates are tied to long-term Treasury yields, which have already discounted a Fed rate hike," Zandi said.

Jerome S. Scarpello, president of Leo Mortgage Inc. in Ambler, agreed with Zandi that the much-anticipated Fed move was one "most lenders have expected and is sort of already 'built-in' to the rates."

Even so, "the interest-rate market has been a little bumpy the last few days, and I think that, even though it was expected, there will still be a spike on the official news," Scarpello said.

It has been his experience, he said, "that after an initial reaction, the markets will settle down, knowing this rate is the new normal."

The day after, Bankrate.com reported a rise in the 30-year fixed rate to 4.09 percent, from 4.06 percent.

Over the last 52 weeks, the 30-year fixed rate has averaged 3.98 percent, Bankrate.com reported.

The increase "will likely have a minimal impact on 30-year rates because it's like an inane proclamation from Donald Trump: Everyone is expecting it, so the only uncertainty was when it would happen," said Kevin Gillen, chief economist for Meyers Research and senior research fellow at Drexel University's Lindy Institute for Urban Innovation.

Some experts were suggesting that fixed rates might even fall rather than rise.

Adjustable-rate mortgages, based on short-term rates, are more likely to be affected, the experts said.

"For borrowers who currently have adjustable-rate mortgages, the rate-hike impact will be slightly bigger," said Doug Lebda, founder and CEO of LendingTree.

"In those cases, it's probably the best time to refinance into a fixed rate or hybrid mortgage," he said.

Whatever happens, you need to be diligent and more discerning as you make financial decisions of the size involving a home purchase.

Be as smart as you can, the hype notwithstanding.

aheavens@phillynews.com

215-854-2472@alheavens

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