Error message

Deprecated function: The each() function is deprecated. This message will be suppressed on further calls in menu_set_active_trail() (line 2405 of /home/hulijedw/public_html/includes/

Fed's warning and its effect on current mortgage rates

Armen Hareyan's picture
Feds warning on today's mortgage rates

Yesterday the Fed's meeting voted to keep the Fed Funds Rate near zero percent while warning that members will decide future rates on a meeting-by-meeting basis. I asked Buzz Mackintosh of Mackintosh Inc, REALTORS to explain for our readers what Fed's warning means and how it will change today's low mortgage rates. This is what Mackintosh said to in a written reply.

Are we there yet? This seems to be the burning question the market keeps asking the Federal Reserve. When will they start raising the interest rate?

There are a couple of trigger points that need to take place before they act.

First, evidence that labor markets have recovered and inflation is reliably expected to be at or above 2% before they act on the rate. The labor markets remain sluggish and most experts I have heard say inflation may not hit the 2% target until possibly 2018.

Over the last couple of quarters mortgage rates have still remained very low ranging from the mid 3% to mid 4% levels. Even if the Fed decides to raise the rate in the near future, long term mortgage rates should only raise at a gradual pace as they remain very cautious.

The effect of increasing mortgage rates on:

A. home inventories
B. home prices
C. people's chances to get mortgages

When mortgage rates increase the general thought process is that the market will slow down. However we have seen many home buyers, who have been sitting on the fence, jump in and purchase a home when interest rates rise initially. So inventory can go down or up depending on the local market place. Rates increasing also have an effect on the number of buyers who can afford to purchase. See the attached charts that will illustrate.

Cost of Waiting and Difference in Monthly Mortgage Payment

Mortgage Rate Projections

Add new comment