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Homebuyers Unshaken by Possible Rate Increase

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Buyers are still motivated to purchase homes, even if the Federal Reserve decides to raise interest rates in one of their last two meetings of the year.

Last week, the at the September Federal Open Market Committee meeting, the Fed decided to keep the federal funds target rate at zero to 1/4 percent, where it has been for nine years.

"In determining how long to maintain this target range, the Committee will assess progress—both realized and expected—toward its objectives of maximum employment and 2 percent inflation," the Fed said in a statement.

The Fed added, "This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen some further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term. If the Feds decide to raise rates today, any increase will be nominal and gradual. The anticipation is that the initial increase will be only 25 basis points (e.g., from 3.75 percent to 4.00 percent), which means mortgage rates are still at historical lows and exceptionally favorable for homebuyers."

Prior to the announcement, Trulia performed a survey on more than 2,000 U.S. adults to get their opinion on rising mortgage rates.

Almost 69 percent of Americans said $250,000 is the most that they would purchase their first or next home. These results indicate that a rise in rates would not affect buyers decisions when purchasing a home, but it may slightly lower the price range in which they are looking to buy.

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"Interestingly, for Americans who are looking to purchase a home this year, mortgage rates are not the primary concern," Trulia said. "Prospective homebuyers are most worried about being able to get a mortgage and if they could find a home that they would like."

Of those surveyed, 42 percent of Americans think mortgage interest rates will increase over the next six months, while 20 percent believe the rates will remain the same.

"Most importantly though, if the Federal Reserve decides to raise rates this year, it will be because they are confident that the economy will weather any short-term shocks," Truila explained. "Over the longer term, the strong economic fundamentals, including robust job growth, better-paying jobs, rising wages, strong consumer demand, and demographic currents in favor of the housing market will boost demand for homes. Lastly, educating consumers about the mortgage process and what is required from them may be more important for the health of the housing market going forward than anything else."

About Author: Xhevrije West

Xhevrije West is a writer and editor based in Dallas, Texas. She has worked for a number of publications including The Syracuse New Times, Dallas Flow Magazine, and Bellwethr Magazine. She completed her Bachelors at Alcorn State University and went on to complete her Masters at Syracuse University.
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