Rising Interest Rates: Who’s Afraid of the Big Bad Fed? You Probably Shouldn’t Be.
According to RISMedia, mortgage rates actually dropped this week after several rounds of rises. But even prior to this moderate dip interest rates still stood very firmly in favorable territory for Home Buyers. Read on to see how the Fed’s decisions do and do not affect you.
Home Sellers feel the effect of climbing rates as well. With inventory flat and the season of demand upon us, keeping low home loan rates in the picture keeps the real estate market moving along.
Mortgage rates spring up and down like a 3-year old on a trampoline and like the stereotypical 3-year old, there is almost no predicting where they’ll go next. Whether or not you lock your rate when you apply for a mortgage or a week later, may make little difference in the end. I say “almost no predicting” with one caveat. If your ratios, the terms of your pre-approval, are very close to the edge of the cliff, if even a small jump in monthly payment will knock you over the edge or bring the purchase of your dream home to a screeching halt, then go ahead and predict on the safe side, and by all means lock away! By the way, your credit score plays a big part in the quest for a low mortgage interest rate. Do all that you can to keep you credit score at it’s best. (for those folks in the position of tight ratios, I have additional suggestions about insurance and assistance with closing costs that may help you afford the home you really want)
I am by no means a mortgage expert so if you have questions or concerns relating to mortgages or the current mortgage market, I strongly urge you to seek the advice of a professional. I am in touch daily with many reputable loan officers and will gladly give you names and numbers of several who would be happy to assist you.
Fed Raising Rates: Much Ado about Nothing?
By Matt Metcalf
The sky is falling! The sky is falling! I have to lock my mortgage rate now! The Fed met last week and raised rates. What does that mean for the mortgage market and mortgage rates?
Not much. The Fed funds rate is the rate that banks lend money to each other on an overnight basis. The Fed raising rates a quarter percent does not instantly translate into a quarter percent increase in mortgage rates. Mortgage rates do not run parallel to the Fed rate. The perception is that all rates rise or fall based on a Fed decision, but, the reality is that the Fed rates have less of an instant impact and are more an indication of long-term borrowing trends for all types of credit.
Here’s why.
Mortgage Rates Are Up Already
Mortgage rates have increased substantially in the few weeks following the election. There are many reasons for this (that we could discuss for hours), but because they have already risen around 0.5 percent or more, running to your lender even now means you are already too late.
Quick Reaction, and Then…
Mortgage rates typically see a quick jump with news of a Fed raise, but rates have already increased substantially. Why? Not only do mortgage rates not run directly parallel to the Fed rate, but often, the mortgage market has already reacted to the anticipation of an increase due to improving economic factors. Not only have we seen unemployment drop to new lows, but income growth is picking up and the stock market appears to be on solid footing (depending upon which expert you talk to, of course).
Prior to the last Fed rate increase in 2015, mortgage rates had also risen substantially, and after the Fed rate increase, mortgage rates actually started moving down. This is definitely a possibility for this Fed rate hike, as well.
Moral of the Story
Don’t freak out or react based on sensationalist news. Get all the information before making decisions. The Fed rate does not equal mortgage rates. At one point in 2006, the Fed rate was around 4 percent and mortgage rates were around 5.5 percent. The Fed rate was at zero from 2009 until the end of 2015, and in that time, mortgage rates were as high as mid-5 percent and as low as mid-3 percent (or lower), so remember mortgage rates can change a lot without any influence from the Fed.
The long-used benchmark for monitoring likely changes in the mortgage rates is the yield on the 10-year Treasury. When it goes up, rates tend to go up—but even that is not a guarantee or direct correlation. There are many factors that affect mortgage rates both short and long term, so like the stock market, there is no perfect decision—only the most informed decision based on your needs and goals.
Known as the “Mile High Home Pro,” Matt Metcalf has been a successful Colorado real estate agent for over 20 years.
For more information, Call or Text: 602-999-0952
eMail: golfarizona@cox.net
Bill Salvatore / Arizona Elite Properties
Residential Sales, Marketing, and Property Management
This was originally published on RISMedia’s blog, Housecall. Visit the blog daily for housing and real estate tips and trends. Like Housecall on Facebook and follow @HousecallBlog on Twitter. Reprinted with permission from RISMedia. ©2016. All rights reserved.
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More Resources for Home Sellers and Home Buyers
Our Buyer’s FAQ page has 9 of the most frequently asked questions from Home Buyers, along with 10 additional resources for Home Buyers at the bottom of the page.
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Thinking of Selling your home? First check out our 9 FAQs for Sellers. Then read on, there are 9 additional resources for Home Sellers at the bottom of the page.
Home Buyer’s Frequently Asked Questions
Home Seller’s Frequently Asked Questions
