Real Estate market response to higher interest

November’s sudden spike in interest rates could have negative consequences for the housing market in 2017, according to Freddie Mac’s monthly Outlook.

If President-elect Donald Trump passes a fiscal stimulus plan in early 2017 which includes infrastructure spending and tax cuts, it could bring higher real economic growth. The downside, however, will be that this growth could be partially offset by a rise in interest rates, according to the report.

“Much like in 2013, we expect housing markets to respond negatively to higher mortgage rates — they will drive down homebuyer affordability, dampen demand and weaken home sales, soften house price growth, and slow the growth in new home construction,” Freddie Mac Chief Economist Sean Becketti said. “And mortgage market activity will be significantly reduced by higher mortgage rates, especially refinance originations, which are likely to be cut in half.”

However, the economy is still expected to have a better year in 2017 with growth of 1.9% year-over-year. Freddie Mac expects 2017 to end with unemployment at 4.7%, and says this year’s slower hiring rate is due to the market being at full employment.

At this point, the market is 100% sure that it will see a rate hike in December, and experts speculate over how many rate hikes will occur next year. Freddie Mac estimates that the 30-year fixed rate mortgage will hover at just over 4% at the end of 2017.

However, it stated that this increased interest rate could slow the pace of housing starts to about 1.26 million, and will decrease total home sales by 220,000 units. Through all of this, Freddie Mac predicts that home prices will continue to increase, hitting a pace of 4.7% in 2017.