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As you probably know by now, the Federal Open Market Committee once again voted to hold rates at their current level, at least for now. Based on the minutes of July’s meeting, the Fed indicated they were leaning toward holding the rates until they believed we recovered from the impact of Brexit. (Some though that would be in September.) Guess not.
A weaker than anticipated jobs report in August factored into the Committee’s recent decision. But, for how long? They reported that although unemployment rates remain unchanged on average, job gains have been solid. That might lead some to believe that they are moving closer to a rate hike. When and how many?
It seems the Fed is still looking for inflation to reach that 2% level before they make any moves on rates. When they do, speculation is any increases will be done incrementally at 25 basis points or less. That shouldn’t have any devastating effects on the economy or its growth. That would be, if and when the economy ever starts growing at any appreciable pace.
So, thanks to the Fed, we can continue to enjoy historically low mortgage rates. Interestingly the market share of refinances increased last week from 62.9% to 63.1%. However overall, on a seasonally adjusted basis, mortgage applications declined from one week earlier by a little more than 7%.
The low mortgage rates continue to allow homeowners the opportunity to give themselves a raise (as some lender commercials suggest) by refinancing to lower their payments. That may be true but is it the best way to grow personal income or the economy. It may provide the homeowner with some additional spendable cash but it doesn’t do anything to increase incomes.
In addition, it continues to take more homes off the market, reducing the number of homes available for sale. This drives up home prices making it more difficult for first time home buyers to find affordable homes. For lenders, they are still making loans – either to existing homebuyers to refi or those more qualified to move up.
So, when do you think the Fed will raise rates? Maybe December, possibly before? When they do, how much and how many times in 2017? What effect might the election have on rate hikes? Once November passes, might the door be open to starting the rates rising? I wish that I had all the answers.
What I do know is that rates cannot stay at the current levels for much longer. If they do, we will have bigger problems because that will reflect that our economy is not growing and that ain’t good for anybody.
Don’t fret the rate hikes. In fact, we should be looking forward to them. If they rise, it means we’re starting to do a little better. A rising tide lifts all boats.
Don’t fear the rate-hiker.
