Who will be hurt when the Fed raises rates?

  • Until -- if -- mortgage rates rise, nobody is hurt except existing ARM (adjustable-rate mortgages) and home equity borrowers.
  • Young people have a very hard time accumulating a down payment, and income instability is more troublesome to the youth set than income altitude.
  • Mortgage rates are not going to run up unless and until inflation does, and this Fed tightening is pre-emptive of inflation.

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So, when the Fed raises rates this time, who will be hurt the worst? First things first: the Fed controls the overnight cost of money, the "Fed funds" rate, not mortgage rates. Only twice in the Fed's history has it directly influenced long-term rates: WWII to the Korean war, and during Quantitative Easing (QE) from 2009 to 2014. Long-term rates -- like mortgages -- are set by markets and often behave perversely. As now. Short-term Treasurys and indices like Libor are rising, but not mortgage rates. Until -- if -- mortgage rates rise, nobody is hurt except existing ARM (adjustable-rate mortgages) and home equity borrowers, and those who are thinking of taking out a new ARM while the Fed is tightening (not a great idea). Long-term rates rise when the Fed is tightening if markets think the Fed has a long way to go. In 1994, the Fed hiked from 3.00 percent to 6.00 percent in less than a year, and mortgages ran up from 6.75 percent to 9.75 percent. This time the Fe...