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As was expected, the Federal Reserve decided to raise interest rates by a quarter of a percentage point last week. This puts the federal funds rate at its highest level since 2008. This could mean higher interest rates on bonds and mortgages and lower returns on real estate investment. Because mortgage interest rates typically follow the 10-year Treasury yield, the 30-year mortgage rate could soon see an increase.
According to a recent article by the National Association of Realtors, inflation is being fueled by the recovery in oil prices and rent increases exceeding 3 percent annually for the past four years, and housing shortages and home sale prices rising even more. The article points out that two-thirds of the country is seeing higher prices today than during the housing bubble era. Without relief for inventory shortages, housing costs are anticipated to continue their rise.
The good news is that interest rates are still quite low and will not prevent home ownership for most buyers. Locally and nationally, rising building costs and construction labor shortages are probably more significant factors in home affordability.