In December, the Federal Reserve raised interest rates. Many people worried the hike would raise mortgage rates and that buying a house would be pricier. However, your mortgage rate update is here: since the Fed’s rate increase, rates on 30-year mortgages have dropped below 4 percent, and many mortgage experts expect them to stay below 4.25 percent this year.
“If the stock market drops another 300 to 400 points some day, mortgage rates might go down another eighth of a percent,” said Ken Perlmutter, president of Perl Mortgage of Chicago. He thinks the dip will be short-lived, and rates are about as low as they will go. He’s not expecting a return to the 3.5 percent that happened while the U.S. economy was recovering from the 2008 recession, but he’s also not anticipating much increase.
A weak global economy and stock market have made this mortgage rate update different than what expected.
The recent drop in rates “surprised a lot of people,” said James Bianco, president of Bianco Research. “People expected rates to be up, not down” after the Federal Reserve raised the federal funds rate. Instead, economic data on a slowing global economy has crimped expectations on the U.S. economy and interest rates.
“Nobody thinks inflation is a risk,” and rising inflation would prompt interest rates, like mortgages, to rise, Bianco said. Instead, the growing view is that instead of responding to a surge in the economy, the Federal Reserve was simply tweaking rates upward because they’d been ultra-low since the 2008 recession, Bianco said.
The Fed’s decisions do not directly lift or drop mortgage rates. The decisions do reflect the economy though, and The Fed had confidence in the economy so it raised rates. Economists predict only modest increases throughout the year to match growth in the economy. The global economy’s struggles will ensure that any changes are not too drastic.
If you have been worried that buying a new home will be extra expensive because of the Fed’s December decision, think again. Most recent numbers show that it did not cause a big hike, and it probably won’t. With any other questions about financing a home purchase, contact RE/MAX Paradise today!