On June 14, 2017 the Federal Reserve implemented a 1/4 point rate hike with a benchmark target of between 1% to 1.25%.
This is the fifth hike since December 2015, when the Fed began to raise rates post our financial crisis after an eight-year hiatus.
Beginning in March 2017, the Federal Reserve governors voted to raise interest rates by .25% with a benchmark range of .75% to 1% due to the strengthening labor market and with inflation below 2%. The June hike was prompted by the unemployment rate at 4.3%, which may possibly fall to 3% by end 2017.
The Federal Reserve sets the rate for the overnight exchange of money by banks: governors adjust the rate to help curb inflation or stimulate growth, depending on the assessment of what would be best for the economy.
How this affects mortgage interest rates on home loans is determined by the up or down movement of the Fed rate, which can put pressure on mortgage interest rates. Mortgage rates usually follow the 10 year Treasury note ("long bond").
National Association of Realtors (NAR) CEO Lawrence Yun states, "However the Federal Reserve should be mindful of the lower than expected rate of inflation and the consequent low interest rates on long-dated bonds, like 10-year Treasury and 30 year mortgage rates."
The direct impact on mortgages will be minimal for now. Rates had jumped 20 basis points right after the Presidential election during that wacky post-election bond market, raising the 30-year-fixed-rate mortgage (FRM) from 3.77% to 3.95%. According to some real estate agents, their clients reacted to increases with urgency by locking in rates and resuming negotiations and entering the market in earnest.
According to Freddie Mac, the 30-year-fixed-mortgage (FRM) rate is at an historic low, averaging 3.89% and the 15-year FRM is at 3.16%. A year ago the 30-year FRM was 3.6% and the 15-year FRM was at 2.87%.
MORE HIKES TO COME?
The Fed will assess economic conditions relative to it's 2% unemployment and inflation objectives. Included in the assessment will be labor market conditions, inflation pressures and expectations, plus financial and international developments.
The overall expectation is that rates will remain stable after the recent hikes and may even fall. Low mortgage rates mean more buyers in the market, with an already brisk home shopping season.
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Next Level East Bay Real Estate
Patty Rogers, Broker Associate
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