Even with interest rate going up our housing market will continue to move forward.

Market Trend

Even with interest rate going up our housing market will continue to move forward.

The United States economy will enter 2017 in a rate-rising environment.

The recent December short-term rate hike is only the first of six to eight additional rounds of increases over the next two years. The head fake of hinting at, but not actually raising rates, will no longer work.

In the past, new developments, like an oil price collapse, government shutdown, the Greek bailout, or Brexit, provided cover for delaying the rate increases. Now, however, the Fed's principal area of oversight —inflation — is on the verge of rapid acceleration.

Consumer price inflation hit 1.7 percent in November after clocking in at essentially zero in 2015. Core inflation, which excludes the volatile changes in food and energy prices, has been rising above the 2 percent mark for the past 12 months and could go even higher — possibly 3 percent in 2017.

That rise could happen, in part, because housing costs are soaring from multiple years of low housing starts. Not only are home prices outpacing people’s income, but the rent growth of 3.9 percent in November is the highest gain since early 2008.

The high-rent trend will continue due to historically-low apartment vacancy rates, and the very few homes on the market for sale. Unless gasoline prices crash to around $1 per gallon, which is highly unlikely, higher inflation will be with us over the coming years. That is why the Fed has to raise rates.

Consequently, the 30-year, fixed-rate mortgage is projected to be around 4.5-5 percent by the end of 2017. That’s certainly higher than the sub-4 percent rate of most of the past five years, yet it is nowhere near alarming by any historical gauge.