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