Last week the Federal Reserve raised short term rates, leading JMAC’s brokers to ask, “Are mortgage rates going up? I have clients thinking about buying a house. Are mortgage rates going to march steadily higher?”
It is hard to say, but our veteran brokers know mortgage rates don’t usually rise in tandem with the Fed’s increases. Sometimes they even move in the opposite direction. Long-term mortgages tend to track the rate on the 10-year Treasury, which, in turn, is influenced by a variety of factors like supply and demand.
Some economists believe that 30-year mortgage rates will creep higher. Inflation is nearing the Fed’s 2 percent target. The global economy is improving, which means that fewer international investors are buying Treasuries as a safe haven. And with two more Fed rate hikes expected later this year, the rate on the 10-year note could rise over time — and so, by extension, would mortgage rates.
JMAC’s brokers know that it isn’t only mortgage rates that are impacted by Fed moves. For users of credit cards, home equity lines of credit and other variable-interest debt, rates will eventually rise by roughly the same amount as the Fed hike. That’s because those rates are based in part on banks’ prime rate, which moves in tandem with the Fed. The Fed’s rate hikes won’t necessarily raise auto loan rates: they tend to be more sensitive to competition which can slow the rate of increases.
On the positive side, our broker’s clients will eventually earn more on their certificates of deposit (CDs) and money market accounts? And those with stock holdings, Wall Street hasn’t been spooked by the prospect of Fed rate hikes. Stock indexes rose sharply after the Fed’s announcement.
The rate hikes are intended to withdraw the stimulus provided by ultra-low borrowing costs, which remained in place for seven years beginning in December 2008, when the Fed cut its short-term rate to near zero. The Fed acted during the Great Recession to spur borrowing, spending and investing. And President Trump is trying to speed up growth which could pit the White House against the Fed in coming years. Trump has promised to lift growth to as high as 4 percent annually, more than twice the current pace. He also pledges to create 25 million jobs over a decade. Yet the Fed already considers the current unemployment rate — at 4.7 percent — to be at a healthy level.
Any significant declines from there could spur inflation, per the Fed’s thinking, and require faster rate increases. More rate hikes, in turn, could thwart Trump’s plans — something he is unlikely to accept passively.