For the first time in a year and only the second time in a decade, the Federal Open Market Committee (FOMC), the policy making arm of the Federal Reserve, voted on Wednesday in its eighth and final meeting of the year to raise the federal funds target rate by 25 basis points up to the 0.50 to 0.75 percent range. Analysts in the housing industry have been speculating for weeks as to what the effect of a Fed rate hike would be on mortgage interest rates and overall affordability. In the month prior to the Fed voting to raise the federal funds target rate, the average 30-year FRM rose by more than 50 basis points to a level above 4 percent for the first time in more than a year.
“While the Fed’s hike of 0.25 point in short-term interest rates may trickle down to long-term rate products like 30-year mortgages, the more immediate impact will be felt by borrowers with variable-rate mortgages and home equity lines of credit who can expect an increase in their payments at their next rate reset,” said Tim Manni, mortgage expert at NerdWallet. “Homebuyers shouldn’t be particularly concerned with today’s Fed move. Even with rates hovering over 4 percent, they’re still historically low.
The Fed released a new forecast Wednesday and it projects U.S. economic growth this year to be 1.9% and next year to be 2.1%, both slightly better than the Fed’s previous projection in September. The rate increase indicate that the U.S. economy no longer needs the Fed’s crutches and consumers and businesses can afford to pay more to borrow.
A survey of 200 mortgage lending professionals showed that nearly two in three mortgage lending professionals expect mortgage purchase production to increase, according to Lenders One Mortgage Barometer.
The overall anticipated increase for 2016 is set at 11%. In addition, 87% of mortgage professionals believe the mortgage purchase market will be somewhat to extremely active.
The survey was conducted online to a random 200 mortgage lenders, and independent research was also conducted by Market Intel Group in January, where it showed that 79% of millennials, are now reaching the peak age for home buying
Lenders One is a national alliance of independent mortgage bankers, correspondent lenders.
Mortgage rates are higher today, leaving September as one of only 3 months this year with noticeable upward movement.
And today was an exception to that recent trend, but it’s tempered by the fact that yesterday’s gains were the best of the month.
The only downside is that the most prevalently-quoted conforming 30yr fixed rate for top tier borrowers remains 4.25% whereas it would have likely moved to 4.125% if rate went the other direction today.
These movement considerations may be small scale compared to what lies ahead. Several big tickets events are coming up in the second half of this week and they stand a good chance to increase the level of volatility.