The Federal Reserve raised interest rates this week for the second time in 3 months. You may be surprised as to what this means for mortgages..
The increase followed Friday’s strong jobs report, as well as faster wage growth and a drop in unemployment rate to 4.7%.
The decision to lift the target overnight interest rate by 25 basis points to a range of 0.75% to 1% marked one of the Fed’s most convincing steps yet in the effort to return monetary policy to a more normal footing.
The committee indicated that further rate increases would be gradual, maintaining their prior forecast for two more rate hikes this year and three more in 2018.
The decision to lift the Fed’s interest rate is likely to have a domino effect across the economy as it gradually pushes up rates for everything from mortgages and credit card rates to small business loans.
Mortgages
Thirty-year fixed mortgage rates hit a 2017 high last week as the average jumped to 4.21% in anticipation of the Fed’s move Wednesday and another similar hike. That is up from a year ago when the average 30-year mortgage rate was 3.68%, according to Freddie Mac.
“For consumers currently shopping for a mortgage to purchase a property or refinance an existing loan,” says NerdWallet mortgage analyst Tim Manni, a Fed rate hike “shouldn’t feel like a real shock to the system since the rate move has already been ‘baked’ into the market.”
Mortgage rates have risen since the election but remain historically low. During the last economic expansion from 2001-2007, mortgage rates hovered between 5% and 7%. In the 1990’s, rates were even higher, skirting between 7% and 9%.
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Source: Reuters, CBS Money Watch, USA Today and HomeServices Lending.