“Now is the time to move forward with purchasing or selling a home before rates increase again. Two more increases are anticipated in 2017.”
 
There has been a lot of press on the Federal Reserve raising interest rates at their March meeting. For the second time in three months, the Federal Reserve increased its benchmark interest rate a quarter point.

The Fed Funds Rate is the “overnight” rate–the shortest possible term used by banks to borrow. Mortgage loans are dictated by rates on longer-term bonds (specifically, “mortgage-backed-securities” or “MBS”).  These bonds are moving up and down every day whereas the Fed Funds Rate, the one that was changed on March 15th, has only changed 2 times in nearly 9 years.

A rate hike does not guarantee that mortgage rates are going up. However, the rate hike this time comes at a time when the interest on a 10-year Treasury Bond is in fact rising.  Mortgage rates are closely tied to the 10-year note, which has been climbing at a rapid rate since the presidential election.

So what will happen to mortgage interest rates in the near term?

Because the job market is good with unemployment considered low (5%), and the stock market has been strong, the interest rate climate for the near future looks to be one of rising mortgage interest rates. The Federal Reserve has indicated that they anticipate two more increases this year. They don’t say how much or when of course, but only that they will rise. The more likely and more frequent the market sees Fed rate hikes, the more mortgage rates (and other longer-term rates) will move up. 

It’s easy to be confused right now

In anticipation of the recent increase, the markets “baked in” raises in the mortgage rates. In fact, they appear to have anticipated a larger increase than what they got on March 15th, so the rates actually improved somewhat.  

Mortgage rates rose over 10 times since March 1, 2017

This brings them very close to highest levels in 3 years.  The most common conventional 30-year fixed note is easily up to 4.375% with a growing number of lenders moving up to 4.5%.  A year ago, 30-year fixed rates averaged 3.68%.  On a $200,000 loan amount, the difference in payment between 3.68% and 4.375% is $80.26/month or more to the consumer.

By Cheryl Spies, President of Essential Mortgage Corporation and Richard Haase, President of Latter & Blum Inc.