“As rates rise, so do real house prices, while affordability declines. However, even with the 37.5-basis-point increase, real house prices will still be 20.7% below the July 2006 peak,” Fleming said in the report. “In recent years, we have seen rate changes have a greater impact on house price appreciation than on the annualized rate of sales. When rates go up, house price appreciation slows down. That's good news for potential first-time homebuyers. Even with the rate increases we expect to see next year, housing affordability is better than it's been in years, when adjusted for consumer house-buying power. Even after the Trump Bump and FOMC rate increase, 2017 will still be a good time to buy.”

We spoke with Fleming about the Trump Bump and potential rise in the federal funds rate and how potential home buyers should strategize to increase affordability.

GlobeSt.com: Given the “Trump Bump” and potential rise in the Federal Funds rate, what should potential home buyers' strategies be to increase affordability?

Fleming: With fiscal expansionary policy expected under the Trump administration, it would probably be wise to consider buying sooner rather than later if you believe you would like to be a homeowner in the near future. Rates are likely to continue to rise, although more slowly, so think of this as a call to action, if you are already seriously considering purchasing a home.

GlobeSt.com: How can potential home sellers better position themselves in the market given these expected rate hikes?

Fleming: For sellers, I think the expectation should be for slightly less demand—maybe not as many offers and possibly smaller escalation clauses in contracts. The sellers' market we have seen in recent years may wane a bit.

GlobeSt.com: What do you see as the long-term impact of these hikes on the housing market?

Fleming: Really, not much. People adjust, and we have seen healthy housing markets in all kinds of rate environments. People still bought homes in the 1980s when mortgage rates were well above 10 percent.

GlobeSt.com: What else should our readers take away from these events?

Fleming: For most, homeowners with fixed-rate mortgages, this is no event at all. Potential first-time home buyers will need to pay a little more per month to be able to buy the same amount of house as before, but as I have said before, on a purchasing-power-adjusted basis, housing is still very affordable by historical standards.

IRVINE, CA—With fiscal expansionary policy expected under the Trump administration, it would probably be wise to consider buying a home sooner rather than later, First American Financial Corp.'s chief economist Mark Fleming tells GlobeSt.com. Looking at three different possible Federal Fund scenarios can give potential buyers a clearer idea of how to assess the situation.

In a recent report from the firm, Fleming's team “considered the impact to existing-home sales and house-price appreciation of three possible Federal Fund rate levels: no change to the Federal Funds rate, a 25-basis-point increase and a 37.5 basis point increase. For the simulations, we assumed that any target rate change will influence short and long rates equally and increase mortgage rates by the same proportion.” In the no-change scenario, baseline expectations for existing-home sales considering a seasonally adjusted annualized rate of sales is 5.7 million. In this scenario, year-over-year nominal appreciation 12 months following the December 2016 FOMC meeting is expected to be 4.9%. In the 25-bps-increase scenario, existing-home sales are expected to decline to 5.55 million SAAR, and the nominal price appreciation year-over-year growth rate falls to 4%. In the 37.5-bps-increase scenario, existing-home sales are expected to drop to 5.48 million SAAR, and the nominal price appreciation year-over-year growth rate falls to 3.7%.

“In addition to the impact on existing-home sales and house prices, first-time home buyers will feel the most impact of the rate increase,” Fleming said in the report. “First American's Real House Price Index adjusts prices for purchasing power by considering how income levels and interest rates influence the amount one can borrow. In short, real house prices provide a more relevant way to compare changes in affordability over time because they are adjusted for differences in home buyers' income and the impact of interest rates on financing costs. Increases in real house prices decrease consumer house-buying power and, therefore, affordability by the same amount.”

In addition, the report looked at expected changes in real house prices in each of the three scenarios. In the no-change scenario, real house prices were expected to grow 2% year-over-year by December 2017. In the 25-bps-increase scenario, prices were expected to increase 4.4% by December 2017, and in the 37.5-bps-increase scenario, prices were expected to increase 5.4% by December 2017.

“As rates rise, so do real house prices, while affordability declines. However, even with the 37.5-basis-point increase, real house prices will still be 20.7% below the July 2006 peak,” Fleming said in the report. “In recent years, we have seen rate changes have a greater impact on house price appreciation than on the annualized rate of sales. When rates go up, house price appreciation slows down. That's good news for potential first-time homebuyers. Even with the rate increases we expect to see next year, housing affordability is better than it's been in years, when adjusted for consumer house-buying power. Even after the Trump Bump and FOMC rate increase, 2017 will still be a good time to buy.”

We spoke with Fleming about the Trump Bump and potential rise in the federal funds rate and how potential home buyers should strategize to increase affordability.

GlobeSt.com: Given the “Trump Bump” and potential rise in the Federal Funds rate, what should potential home buyers' strategies be to increase affordability?

Fleming: With fiscal expansionary policy expected under the Trump administration, it would probably be wise to consider buying sooner rather than later if you believe you would like to be a homeowner in the near future. Rates are likely to continue to rise, although more slowly, so think of this as a call to action, if you are already seriously considering purchasing a home.

GlobeSt.com: How can potential home sellers better position themselves in the market given these expected rate hikes?

Fleming: For sellers, I think the expectation should be for slightly less demand—maybe not as many offers and possibly smaller escalation clauses in contracts. The sellers' market we have seen in recent years may wane a bit.

GlobeSt.com: What do you see as the long-term impact of these hikes on the housing market?

Fleming: Really, not much. People adjust, and we have seen healthy housing markets in all kinds of rate environments. People still bought homes in the 1980s when mortgage rates were well above 10 percent.

GlobeSt.com: What else should our readers take away from these events?

Fleming: For most, homeowners with fixed-rate mortgages, this is no event at all. Potential first-time home buyers will need to pay a little more per month to be able to buy the same amount of house as before, but as I have said before, on a purchasing-power-adjusted basis, housing is still very affordable by historical standards.