How the Rate Rise Will Affect High-End Homes

The Federal Reserve announced Wednesday its decision to raise the benchmark interest rate for the first time since December 2008. The U.S. central bank will lift the federal funds rate by a quarter percentage point on Thursday, from near zero to between 0.25% and 0.5%. While the move is expected to have a gradual impact over housing and financing, the luxury real estate sector should not feel the heat. “For the high-end portion of the market we don’t see much of a response,” Ken Fears, director of Housing Finance for the National Association of Realtors, said. Especially for the $2 million-range and above, higher rates shouldn’t have much of an impact since few buyers in that level resort to financing, paying in cash instead, he said. “Luxury buyers are more likely to buy without financing or to put substantially more money down when they use financing,” said Jonathan Smoke, chief economist at Realtor.com. “In addition, luxury buyers who use financing typically have higher credit scores. As a result, mortgages on luxury homes see lower rates on average and also see lower debt-to-income ratios.” Cash sales in the U.S. represented 24% of transactions in October, according to NAR. The association expects the short-term rate to reach 4.9% by the end of 2016, but Fears said long-term rates are more influenced by the overall economy rather than the central bank’s decisions. View full listing (pictured top) Write to Andrea López Cruzado at andrea.lopez@dowjones.com