June 1st, 2016 5:34 AM by Jackie A. Graves, President
Reserve Chair Janet Yellen
rates held close to a
three-year low this week, ticking up slightly to an average 3.58 percent
on 30-year fixed loans. A year ago, the rate averaged 3.84 percent, according to a survey from Freddie Mac.
Yesterday, Federal Reserve policymakers sent a signal
that they might raise rates on their own short-term loans, news that sent
financial markets into a tailspin. Most of Janet Yellen’s team think the labor
market is improving and economic growth is picking up, according to meeting
minutes released yesterday.
Those are good reasons to make money more expensive. A lot of
financial traders took the Fed’s message to mean that a rate hike could come as
soon as next month, pushing the odds from
almost nothing to more than one in four.
Homebuyers shouldn’t fret. First of all, the Fed doesn’t directly
control rates on long-term loans like mortgages. When the central bank dropped
its benchmark rate to near zero in 2009, mortgages got cheaper, but not that
Freddie Mac, Federal Reserve
Second, home loans are near all-time lows — a slight increase
won’t be a make-or-break for most buyers.
Third, big investors are still worried about the global economy and are parking
money in safe assets, including mortgages, which has the effect of holding
“If you want to predict mortgage rate increases, look for a steady
and sustained clip of good news like strong wage growth, robust economic
expansion and soaring global investment, conditions we’re still waiting on
seven years into the recovery,” Redfin chief economist Nela Richardson said.
“Lacking these conditions, a Fed rate increase in June barely moves the needle
Fed policymakers meet again June 14-15.
Here’s what happened to mortgages after they raised rates in December.
“The Fed has been pushing investors to brace for rate hikes for 14
months. In that time, they have hiked just once,” said Chris Low,
chief economist at FTN Financial. ”In contrast, the last two tightening
rounds were presaged by the slimmest of hints, but once under way continued at
a steady pace. As a result, markets quickly positioned after a brief period of
disruption. This time, the economy lacks enough oomph for the Fed to act
decisively. Market uncertainty is inevitable.”
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