The FOMC met late last week to determine how to handle interest rates moving forward. In December, the committee voted to raise interest rates by ¼ of a percent and alluded to future incremental hikes. At the most recent meeting, however, the Fed announcement made no change to interest rates, though more can be expected at some point further down the road. What does this mean for the mortgage industry and the housing industry as a whole? There’s no crystal ball to tell us the exact answer, but we can look at the opinions of financial experts to see some potential outcomes.
Federal Reserve Announcement and the Housing Industry
The FOMC statement should come as “welcome news” to potential mortgage borrowers, according to The Mortgage Reports. With the fed funds rate staying between 0.5% and 0.75%, there likely won’t be any major changes in Southern California interest rates before the next meeting in mid-March. So for buyers or homeowners looking for a new home loan either for a purchase or refinance, this news should not have a huge impact over the next six weeks.
The Fed noted that most economic indicators continue to look positive, including household spending, business sentiment, and job gains. Still, there was no direct answer to when these near-historic low mortgage rates will witness another uptick. Instead, the FOMC pledged to continue its monitoring of the economy to determine when the next rate hike should take place. Any change that takes place, said the Fed, “will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run.”
What to Expect with Upcoming Interest Rates
There’s no way to tell when the Fed will begin its “gradual” increase of interest rates, but economists and financial experts love to make predictions because the fed funds rate affects so many parts of the economy — including mortgages. While the Fed has previously given signals that it planned several rate hikes over the last couple of years, in reality, there have only been two since 2006. Some economists believe that even if the Fed wants to raise interest rates more in 2017, that doesn’t mean it is going to happen.
Even if mortgage rates do start to rise throughout 2017, potential buyers shouldn’t get too worried. According to Lawrence Yun, chief economist of the National Association of Realtors, the housing market should be bolstered by growing economic gains. He said in a recent speech, “Increasing mortgages rates have the potential to further dent affordability in markets where supply struggles to recover to more balanced levels. Despite these likely pressures, the increase in home sales next year will be supported by the continued release of pent-up demand and the beginning of stronger participation from first-time buyers.”
No matter where you are in your home buying journey, interest rates can impact your purchasing power. But even with the potential for incremental increases throughout the year, rates will almost certainly remain well below historic averages.
Curious about today’s rates? Talk to one of our mortgage bankers to learn more about our mortgage products.