The Federal Reserve raised their benchmark interest rate by a quarter point this morning, marking the 3rd rate increase since December of last year. At the press conference announcing the increase, Fed Chair Janet Yellen said the rate hike “reflects the progress the economy has made and is expected to make toward maximum employment and price stability”.
The Fed’s decision to raise rates again signals a growing confidence in the American economy, which saw the unemployment rate hit a 16-year low in May. The Fed’s Board members predict there will be one more increase before the year’s end.
What does this mean for real estate? As it becomes more expensive for banks to borrow from the Fed, it typically becomes more expensive for consumers to borrow from the banks. This is why people heavily monitor the Fed’s interest rates to forecast where mortgage rates might be going. That being said, average 30-year fixed mortgage rates have actually been on a slight downward trend over the past few months, despite two recent hikes in the Federal Reserve rate.
Mike Fratantoni, Chief Economist for the Mortgage Bankers Association, speculates that interest rates abroad might be holding back our mortgage rates here. While the Federal Reserve is showing confidence in the US economy by continuing to raise interest rates, central banks in other countries are still trying to stimulate their economies by keeping rates low. This coupled with a strong foreign demand for safe assets (US real estate), is acting as somewhat of an anchor to US mortgage rates, according to the MBA. Still, many economists, including Freddie Mac’s Sean Becketti, expect that US mortgage rates will begin to gradually rise as the year progresses.
If you’re thinking about buying and would like to explore financing options/current interest rates, we will gladly connect you with one of our trusted loan advisors. Feel free to call our office at (650) 363-2808.