Ever since December when the Fed announced the first in a series of rate hikes, economic experts have given all sorts of opinions on the future of mortgage rates. The largest cry heard was to refinance or jump on a new home quickly, because rates were bound to go up. But eight months and two hikes later, mortgage rates are virtually unchanged. Forecasters initially thought we were in for another increase at the FOMC’s September meeting, but as confidence with those projection begins to fade, it’s unlikely mortgage rates will change much. So why have these predictions been so entirely wrong? Let’s look a little closer to find out.
Inflation Was Lower Than Expected
One of the most important economic indicators that affects the price of goods — and rates — is inflation. In case you’ve forgotten since your Econ 101 class, inflation is “a sustained increase in the general level of prices for goods and services in a country, and is measured as an annual percentage change.” Prices rise and, consequently, dollars are worth less because you can’t buy as much with the same amount of money.
The FOMC has expressed increased concern that inflation has been lower than expected (and desired). Lower interest rates are usually meant to spur inflation but despite the uptick in rates from the Fed, inflation remains low. Federal Reserve Chair Janet Yellen recently attributed this to drops in prices from major cell phone carriers as well as “one-time” price drops in the pharmaceutical industry. But inflation has steadily remained at 1.5% since the start of the recession, a full half percent below the Fed’s 2% target. It’s helped to keep mortgage rates low, despite the Fed’s attempts to raise rates across the board.
Our Political Climate Is Uncertain
Regardless of what your politics are, you can count on the fact that when there is uncertainty in Washington, rates are unlikely to make any major moves. And if there’s one thing that can be said about life in post-election America, it’s that new political stalemates and turmoil are reported almost every day. While mortgage rates temporarily jumped following the President’s election, they have since stabilized and will likely continue to remain so. Why?
Investors don’t like uncertainty and tend to shy away from stocks in favor of bonds during such times. We’ve seen the 10-year Treasury drop recently and mortgage rates usually correlate with these long-term notes. So despite some economists’ sincerest efforts to sound the alarm over skyrocketing mortgage rates, it’s simply not a reality.
What Does This Mean For You?
Rather than making a rash decision in the home buying process or deciding not to buy at all, potential buyers don’t yet need to rush in finding the right home. If you’ve been putting off buying a home because you thought a rate spike was imminent, it may be time to reconsider. Many current homeowners may even find that it’s a good time to refinance, whether it’s to qualify for a lower rate or cash out on some equity from their California real estate.
If you’ve considered any of these strategies, give us a call. We can run some numbers and give you an idea of what is actually happening with today’s rates — and you may be pleasantly surprised.