Federal Reserve on Interest Rate Hike: Not Yet

The Federal Reserve voted Wednesday to continue to leave short-term rates alone, but hinted that a raise is still likely before the end of the year.

Fed Chair Janet Yellen offered an upbeat report about a strengthening economy, while still acknowledging the sluggish first half of the year. Employment is increasing and household incomes are too, she said. While the case for raising rates has strengthened, Yellen said there was no need to raise rates quite yet because inflation remains below the Fed’s 2 percent target.

“We judged that the case for an increase had strengthened but decided for the time being to wait for continued progress toward our objectives,” Yellen said at a press conference following the Fed’s policy meeting.

Source: “Fed Stands Pat, But Says Case for Rate Increase Has Strengthened,” The Wall Street Journal (Sept. 22, 2016) and “Why Housing Doesn’t Care About the Fed,” CNBC (Sept. 21, 2016)

Home Loan Interest Rates Inch Slightly Higher

“Treasury yields marched higher this week. As a result, the 30-year mortgage rate jumped 7 basis points to 3.66 percent,” says Sean Becketti, Freddie Mac’s chief economist. “The Federal Reserve’s decision to leave the Federal funds rate unchanged triggered a 9 basis point drop in the 10-year Treasury yield on Wednesday, however the drop occurred too late to impact this week’s survey.”

Freddie Mac reports the following national averages for the week ending April 28:

  • 30-year fixed-rate mortgages: averaged 3.66 percent, with an average 0.6 point, rising from last week’s 3.59 percent average. Last year at this time, 30-year rates averaged 3.68 percent.
  • 15-year fixed-rate mortgages: averaged 2.89 percent, with an average 0.6 point, increasing from last week’s 2.85 percent average. A year ago, 15-year rates averaged 2.94 percent.

Source: Freddie Mac

Little to Fear in Home Loan Interest Rate Hikes

Freddie Mac Chief Economist Sean Becketti is dismissing concerns that the Federal Reserve’s latest change in monetary policy could spell trouble for the real estate market. The Fed’s decision to raise its benchmark short-term rates will not cause mortgage rates to skyrocket, reduce housing affordability, or reverse recent improvements in the housing market, he writes on Freddie Mac’s Executive Perspectives blog.

In fact, Becketti predicts that the Fed’s move won’t take much of a toll on mortgage rates at all. As an example, he cites a time during the mid-2000s when the 17 consecutive monthly rate hikes issued by the Fed basically had no effect on mortgage rates, which remained at about 6 percent.

Becketti predicts that mortgage rates will increase gradually from 2015’s 4.1 percent to an average of 4.4 percent by the end of 2016. He expects home prices to moderate more in the new year too, increasing about 4.4 percent this year.

“While we believe the housing sector will remain strong in 2016, there is some uncertainty about the strength of the broader economy,” Becketti says.

Source: “Strong Housing Sector Trumps Tighter Monetary Policy in 2016,” Freddie Mac Executive Perspectives Blog (Jan. 4, 2016).

Hike in Home Loan Interest Rates Likely by Mid-Year

Many economists believe mortgage rates will be on the move upward this year after sitting near historic lows the past few weeks. The 30-year fixed-rate mortgage rose above 4 percent for only two weeks since Oct. 16, according to a Freddie Mac report. That has helped to lower borrowing costs for home buyers — but that may soon change.

The Federal Reserve is expected to boost its short-term interest rate target around the middle of the year if economic growth continues to move at a solid pace. “Bond yields and mortgage rates will begin moving higher as the timetable for Fed interest rate hikes comes into focus, with rates on credit cards, auto loans, and home equity lines of credit responding after the fact,” says Greg McBride, Bankrate.com’s chief financial analyst. “The bulk of next year’s increases will come in the back half of the year.”

“We’ll see rates near 4 percent on the low side if there’s an economic stumble or geopolitical crisis, and rates as high as 4.8 percent or 4.9 percent if the Fed missteps or misspeaks,” McBride says.

Lawrence Yun, chief economist for the National Association of REALTORS®, expects the Fed to act sooner with its uptick in rates due to inflationary pressures of rising wages and rents. Jonathan Smoke, chief economist at realtor.com®, is forecasting mortgage rates to reach 5 percent in 2015.

Source: “Bankrate.com: Expect Fed to Move on Interest Rates by Mid-Year,” HousingWire (Jan. 5, 2015)

Mortgage Rates Are Inching Back Up

Fixed mortgage rates were on the rise this week, “applying additional pressure for those markets that are already feeling an affordability pinch,” Freddie Mac reports in its weekly mortgage market survey.

“Mortgage rates rose following the uptick on the 10-year Treasury note after comments by the Federal Reserve Chair Janet Yellen indicated a possible increase on interest rates as soon as early 2015,” Frank Nothaft, Freddie Mac’s chief economist, explains.

Freddie Mac reports the following national averages for the week ending March 27:

  • 30-year fixed-rate mortgages: averaged 4.40 percent, with an average 0.6 point, rising from last week’s 4.32 percent average. A year ago at this time, 30-year rates averaged 3.57 percent.
  • 15-year fixed-rate mortgages: averaged 3.42 percent, with an average 0.6 point, rising from last week’s 3.32 percent average. Last year at this time, 15-year rates averaged 2.76 percent.
  • 5-year hybrid adjustable-rate mortgages: averaged 3.10 percent, with an average 0.5 point, increasing from last week’s 3.02 percent average. A year ago, 5-year ARMs averaged 2.68 percent.

Source: Freddie Mac

Improved Home Equity Boosts Household Wealth

Gains in home equity and stock values helped lift household net worth by $1.3 trillion during the second quarter, the Federal Reserve said Wednesday. Household net worth totaled $74.8 trillion, a 1.8 percent increase over the first quarter.

During the recession, Americans’ wealth totaled $57.2 trillion.

The Fed uses the value of assets like homes, stocks, and bank accounts — minus debts like mortgages and credits — to calculate household wealth. During the second quarter, home values increased $525 billion. Meanwhile, stocks and mutual funds rose $300 billion. The more net worth consumers have, the more they are likely to spend, giving the economy an overall jolt.

Source: “Home and Stock Values Help Lift U.S. Household Wealth,” The Associated Press (Sept. 25, 2013)

Surprise Fed Move Could Ease Mortgage Rates

Federal Reserve Chairman Ben Bernanke shocked the financial world Wednesday by announcing that the Fed would wait “a little longer” before tapering its $85 billion-a-month bond-purchasing program. The Fed says it wants to see more improvement in the economy before proceeding with a wind-down.

“It was a precautionary step,” Bernanke said at a news conference, adding that Fed policymakers have “decided to wait a little longer to make sure the economy is conforming to” their positive economic outlook. Bernanke noted that job growth has also fallen the past three months and “is far from what all of us would like to see.”

The housing market’s recovery has recently showed some slight signs of slowing as mortgage rates tick up. Since the Fed first signaled in May that it may start slowing its bond-purchasing program, mortgage rates have jumped a full percentage point, rising from 3.51 percent to 4.57 percent for the 30-year fixed-rate mortgage.

“The general framework [for the tapering] is still the same,” Bernanke said. He added that the Fed likely would begin to pull back on the program “possibly late this year.”

Source: “Fed delays taper, surprising markets,” USA Today (Sept. 18, 2013)

Mortgage Rates Climb to “Highest Level in Year”

“Fixed mortgage rates followed long-term government bond yields higher, following a growing market sentiment that the Federal Reserve may lessen its accommodative policy stance,” says Frank Nothaft, Freddie Mac’s chief economist. “Improving economic data may have encouraged those views.”

However, mortgage rates remain low by historical standards, Freddie Mac reports.

The mortgage giant reports the following national averages with mortgage rates for the week ending May 30:

  • 30-year fixed-rate mortgages: averaged 3.81 percent, with an average 0.8 point, rising from last week’s 3.59 percent average. A year ago at this time, 30-year rates averaged 3.75 percent.
  • 15-year fixed-rate mortgages: averaged 2.98 percent, with an average 0.7 point, rising from last week’s 2.77 percent average. Last year at this time, 15-year rates averaged 2.97 percent.
  • 5-year adjustable-rate mortgages: averaged 2.66 percent, with an average 0.5 point, also up from last week’s average of 2.63 percent. Last year at this time, 5-year ARMs averaged 2.84 percent.

Source: Freddie Mac

4 Banks Fail ‘Stress’ Test?

Four of the the country’s 19 largest banks do not have enough capital to withstand another economic downturn, if one occurs, according to the Federal Reserve’s latest stress test for banks.

Would you have guessed the four banks at risk named in the report are Citigroup, SunTrust, Ally Financial, and MetLife?

The hypothetical stress test, conducted annually by the Federal Reserve but not usually released publicly, analyzes if banks could weather the storm if the economy saw a 21 percent reduction in home prices, 13 percent unemployment, and a 50 percent drop in stock prices. The test aims to see which banks would be able to continue to lend money to individual and businesses even if such catastrophic losses occurred.

For any banks that fail the stress test, the Fed can force them to raise money, such as by selling additional stock or issuing debt.

For the banks that did pass, they are able to raise their dividends and take action in luring more investors to their stocks. This year’s results are “clearly good news — the U.S. banking system can now withstand a quite severe recession without falling over,” Douglas Elliott, a fellow at Brookings Institution, told the Associated Press. Among the banks that passed the stress test are U.S. Bancorp, JPMorgan Chase, and Wells Fargo.

Source: “Federal Reserve Annual Stress Test Fails 4 of 19 Big Banks,” The Associated Press (March 12, 2012)

Federal Reserve Officials call for more “Housing Fixes”

New programs and “housing policy interventions” are needed to help the real estate market rebound and boost growth in the overall economy, three Federal Reserve policymakers said Friday. 

The latest statements join a range of calls by the Federal Reserve in the last week urging for more government intervention to help the housing market. Last week, the Fed released a 26-page white paper  providing an outline on how the government needs to take more aggressive action to prevent home values from falling further, seek solutions to the foreclosure crisis, and loosen stringent underwriting standards that are keeping borrowers from securing mortgages or refinancing. 

New York Fed President William Dudley said on Friday that the housing market is “only one factor behind the frustratingly slow” economic recovery, but it’s an “important one that deserves our attention.”

“Forceful and effective housing policies have the potential to significantly influence the speed and strength of our recovery,” Fed Governor Elizabeth Duke said in separate comments made last week at an event in Virginia. 

Source: “Fed Officials Focus on Housing ; Emphasis put on Importance of Sector to Overall Economy,” Bloomberg News (Jan. 9, 2012) and “Fed Officials Push More Stimulus for Housing,” Reuters News (Jan. 9. 2012)