Mortgage rates inched down this week, averaging 3.48 percent for a 30-year, fixed-rate loan, dropping from 3.50 percent last week. Last year at this time, rates were 3.86 percent, according to Freddie Mac.
Yesterday, in a much-anticipated meeting, the Federal Open Market Committee (FOMC) decided to keep the Federal funds rate unchanged in a contested vote, with three of ten members wanting to raise rates.
The economy is improving, but it’s still fragile.
“As the housing market is finally normalizing, the Fed is struggling to find a new normal in the jobs market. Though the unemployment rate is low, there are still more workers than there are jobs. The risk is that a rate hike might choke off hiring too soon,” said Redfin chief economist Nela Richardson.
We also have a lot of economic uncertainty. We’re coming into a major election with worldwide implications, for example.
Janet Yellen, the chair of the FOMC, doesn’t want to jolt the economy unnecessarily.
The good news is that the housing recovery is no longer as dependent on low rates.
“Housing is now in a hard won position,” said Redfin chief economist Nela Richardson. “Its growth path is no longer so dependent on the Fed’s policy of keeping short-term rates extremely low, especially since the industry has a portfolio of mortgage securities that can suppress mortgage rate increases.”
“Buyer demand is still vigorous as housing has benefited from household income growth and an extension in lending,” said Richardson. “The housing market recovery is now spreading across geographies, price points and hopefully soon, income levels.”
We’re starting to see some real examples of this. In the August 2016 Redfin Homebuyer Sentiment Survey, only 9 percent of buyers said that they would stop their home search if mortgage rates increased by a point or more, down from 15 percent a year ago.
Probably not until at least December.
Yes, there’s an FOMC meeting in early November, but no one wants to raise rates just before the election.
Odds makers give almost a 60 percent chance of a rate raise at the December 14 meeting, which would likely trickle down at least a little bit to mortgage rates.
But remember that homebuyers are enjoying very, very low rates. Even with a reasonable hike, rates would still be bargain-basement.
