Leading up to the Fed’s increase in short term rates, our brokers found that the majority of mortgage borrowers were not afraid of a rate hike despite the fact that, at that time, a rate hike was imminent. Sure enough, mortgage rates have not done much, but it is still good to take a look at what is driving them.
Last week, JMAC’s brokers—and the industry—saw rates buffeted by news from the Chinese economy, which the Fed also needs to consider going forward. Yes, the Fed raised short term rates nearly a month ago. The last time the Fed raised rates was from mid-2004 to mid-2006, and mortgage rates only rose a half a percent during that time. Federal Reserve Chair Janet Yellen gave us plenty of warning that the central bank planned to increase the federal funds rate in December after their next meeting.
What about the rest of 2016? With our economic climate continually buffeted by news from overseas, it is anyone’s guess. The plan is for the Fed to raise rates gradually from here. As predicted, the rate hike had an immediate effect on shorter-term rates such as credit cards and car loans, but the effect on longer-term rates, such as mortgages, has not been as evident as rates could just as easily go down as up. Economic growth and inflation have a greater effect on longer-term rates, which could impact how much mortgage rates rise.
Slightly more than half of those polled in a recent Fannie Mae survey expect higher rates over the next 12 months, but the expectation for higher rates is reasonable since the economy is improving, unemployment is down, and the GDP is moving towards 2 percent. The National Association of Home Builders has predicted that the 30-year mortgage will hit 4.5 percent next year and 5.5 percent in 2017. But I think that their estimates are no better, or worse, than any of JMAC’s brokers who follow the markets.