As predicted, the Federal Reserve has just raised interest rates for the first time since December of last year, upping the target federal funds target rate by 0.25 percent (25 basis points) and signaling expectations for another three quarter-point increases by the end of 2017.

The Fed dropped the benchmark Federal Funds rate 5 full percentage points between August of 2007 and the end of 2008, a move which helped drive mortgage rates down to an all-time low of 3.31 percent in 2012. The Fed has since raised the target rate by a total of 0.5 percent.

The current average rate for a 30-year mortgage was running around 4.13 percent as of mid-last week, having jumped 56 basis points over the past month.

Comments from Plugged-In Readers

  1. Posted by pablito

    A 1% rise in interest rates is equivalent to an extra $250 a month for the average Bay Area mortgage… Affordability will be squeezed.

    • Posted by no name

      sounds like a $400k mortgage? I guess that can happen out in contra costa county, but hard pressed elsewhere.

      for an 800k mortgage, i’m seeing closer to 500; not a back breaker in that price range, but definitely adds up. there’s also the offset of the higher deduction from mortgage interest…while it lasts anyway

  2. Posted by SFLandlord

    Guess I’m done with the refi game for awhile. Not too upset about that actually.

  3. Posted by Confused Renter

    Interest rates do not scale linearly with monthly payments.

    Let’s say a buyer buys home for $1m with 20% down. The buyer would take loan out for $800k.

    A 0.25% increase in interest rates equates to only $100 more per month. Not a big deal!

    FOMC is projecting a 2% increase in interest rates in the next few years. This is where the math gets interesting. A 2% interest rate increase equates to $1000/month more!

    Now the buyer can only afford a loan for $620k if he/she wants to maintain monthly payments. This represent an 18% decline in affordability!

  4. Posted by Booger

    Confused renter. You are half correct. As banks calculate your ability to purchase based upon ratios, the higher the rates, the more you need to earn as a factor of more than 1 to qualify.

    • Posted by Confused Renter

      I was merely pointing out affects of interest rates on monthly payments, not ability to qualify for a loan.

  5. Posted by 4th Generation SF'er

    Unfortunately, Janet Yellin will be in till 2018 & she is the chairperson of the Fed. Trump wants her gone & I don’t think he wants interest rates to rise. She needs to step down.

    • Posted by SFRealist

      The Fed Chair does not serve at the pleasure of the President

      • Posted by AnonMaster699

        No. They are appointed by the President and serve their world view/ideological needs. Presidents who want housing and stock prices to rise get what they want. Obama wanted it and Bernanke/Yellen gave it to him, wiped out the middle class due to their policies and Trump is now the result for better or worse.

        • Posted by SFRealist

          Nope. The Fed in independent. Fed Chair does not serve the President’s world view or ideological needs.

          • Posted by AnonMaster699

            And when Yellen is ousted n a couple years if not earlier Trump will appoint one who does hence my point. Presidents ultimately control FED polices.

  6. Posted by Dandywhatsoever

    Actually it’s pretty great that the economy is stable enough to raise rates. Yellin is doing a great job. I hope she renews in 2018.

    • Posted by Anoncurious

      There are less people employed today than six years ago in the U.S. (1,154,00 to be exact) Yellin is being purely political with these rate hikes. When you travel outside the Bay Area bubble, you realize there is no economic recovery. Hillary did not tap into this reality, Sanders and Trump did.

      • Posted by anon

        Anoncurious is exactly right. It’s so easy to imagine that the entire U.S. is doing well because the bay area is. But if you travel somewhere else and mention that the economy is good you will notice that people respond with very puzzled expressions. Growth in wealth has been extremely concentrated since the great recession. Some areas have done great, some not so much.

      • Posted by Wai Yip Tung

        Anoncurious, what is your data source? Bureau of Labor Statistics shows a steady increase in employment-population ratio since the bottom in 2010.

        Sounds like Trump is really good at tapping into fake news.

        • Posted by Anon94123

          Is CNN fake news?

          • Posted by Ohlone Californio

            Your CNN citation did not refute anyone’s points. But no, CNN is not fake news. You are using the sort of tactics fake news internet arguers might utilize, though.

        • Posted by Anoncurious

          “According to data from the Bureau of Labor Statistics, in January 2008, 146,378,000 Americans 16 and over were employed, and in January 2014, 145,224,000 are employed, a difference of 1,154,000.

          91,455,000 Americans 16 or older did not participate in the nation’s labor force in January, meaning they neither held a job nor actively sought one.”

          I apologize for using the 2014 statistic, STILL, If things were as great as current political leaders claimed, there would have been a President Clinton instead of a President Trump. Sanders and Trump voters were voting out of frustration over being spewed statistics claiming the economy was great, when their own actual lives and careers were otherwise. The interest rate hikes NOW do not reflect a better economy, rather they are being “allowed” now that Obama is about to leave office.

          • Posted by anon

            Well, so three years ago, there were 1.15 million fewer jobs than 9 years ago . . . and? We had an enormous recession in between.

            But today we’re at 6 million more jobs than the pre-recession peak. During a period when simple demographics (tens of millions of retiring baby boomers) would lead to lower employment numbers, all else being equal.

            Hillary did get the most votes by nearly 3 million. The second highest number of votes ever (after Obama). Heck, trump didn’t even get a majority of republican primary votes (and sanders fell far short of that). Your thesis doesn’t hold up.

          • Posted by Jake

            USA has added ~7.5 million jobs since Jan 2014, according to the BLS stats which anyone can lookup on their site, very easy to find (your tax rubles at work). BLS also publishes employment breakdowns by major industries (retail, construction, manufacturing, bloggers,…). Most of these have recovered to pre-recession job levels, with the notable exception of manufacturing which really got hammered in the Great Clinton Recession of ~2008-9 (HRC was in gov’t at the time and thus responsibly undeniable). Manufacturing is still down about a million jobs from before the Democrats laid waste the midwest, aka the land between the Jerseys. A switch of ~50k votes distributed just the right way in WI, MI, and PA, and we would probably be doomed for another 8 years of prosperity. Intolerable as that would be. Thankful, “for once the rich white man is in control!” (Simpsons Movie, Mr Burns).

            FTR, the US has added more than 14 million jobs in the past 6 years (End of Nov 2010 to end of Nov 2016 = 14,376,000 per BLS). Fortunately, most of the profits of the recovery have gone to the members of the next cabinet.

          • Posted by Ohlone Californio

            wow I actually liked a post of Jake’s !

          • Posted by Justin

            And how many baby boomers retired…

      • Posted by anon

        This is simply false. There are 13 million more employed people in the U.S. than 6 years ago – 152,085,000 in 11/2016 vs. 139,044,000 in 11/2010 to be exact, per BLS stats. All the more remarkable in that the labor force has been dwindling due to baby boomer retirements until recently when it just started picking up again.

        • Posted by Can't Think of Cool Name

          @anon, which table are you looking at? I checked out the BLS table for “Employment status of the civilian noninstitutional population, 1945 to date [2015].” Looking at the “Employed”numbers, 2015 was 149 million (59.3% of the population) and 2010 was 139 million (58.5% of the population).

          My concern with the new jobs being created right now across the US are the actual quality of those jobs; what type of jobs are they and can those jobs support paying a higher price for all kinds of things, including a place to live.

        • Posted by SFRealist

          You’re right, Anon.

          Watch how quickly Foxnews pivots from ‘the economy is terrible due to Obama’ to ‘the economy is great due to Trump’

      • Posted by AnonMaster699

        nailed it, great post. Bernanke and Trump are “symptoms” from “establishment ideas”

    • Posted by 4th Generation SF'er

      No worries Dandy. She will be gone. Especially after raising the rates 3x in 2017. That’s not the way to “keep your job”, that is the way “out the door”.

      • Posted by cleverpunhere

        That is not how the process works. Yellen serves a term, so can’t simply be fired because the president disagrees with her. The system was designed specifically to avoid political interference with the process.

        • Posted by SFRealist

          Just think of Trump’s reaction when he learns this

          • Posted by AnonMaster699

            He knows and already stated via campaign staff that she can serve out her term but will not be renewed.

  7. Posted by HousingWonk

    With any luck, Yellen understands the garbage fire of kleptocrats that is moving into the White House, raises short terms rates not only the projected 3 in 2017, but 4, and tosses in a fifth in January 2018 before she’s out the door in Feb 2018. And helps trigger a hard recession for Trump to have to deal with, just as the Dumpster Fire Party has to start planning for the mid-terms.

    Janet Yellen Kenobi, you’re our only hope.

    • Posted by Notcom

      If we were really lucky we wouldn’t be having these (virtual) discussions in the first place. Then again , there were actually people who wanted (Lawrence) Summers, so maybe it’s not so much we’re not lucky as much as we’ve just used up our quota for a while.

    • Posted by SFrentier

      Right, like the fed chief really wants to purposefully wreck the economy in the hopes of making trump look bad.

    • Posted by Justin

      This is too good.

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