Heading into 2017 it seemed that the days of mortgage rates below 4% were long gone, and if buyer’s wanted to lock in a low rate they would need to act fast before rates surged to projected levels of 4.5 to 5% by the end of the year. Those predictions could not have been more wrong, however, to the delight of anyone who had been kicking themselves for not buying or refinancing yet.
The great news for the real estate market is that these lower rates are coinciding with warmer weather, as the spring season gives way to a strong summer market. Although, the 800-pound gorilla in room who came to crash the party is the severe lack of inventory for buyers to pick from.
For those who are fortunate enough to find the needle in the haystack, hopefully you locked in a rate recently as mortgage rates have dropped down to not only a 2017 low, but to their lowest mark since November of 2016 at right around 3.75% depending on where you look. However, the Federal Reserve meets tomorrow and is expected to raise short term interest rates by a quarter of a percent up to 1.125%
The Fed has raised its Federal Funds Rate twice in past calendar year, and at least two more increases were expected in 2017. The latest was on December 14, 2016 and after this rate hike, mortgage rates continued their upward climb at the time to 4.16%. While that number is high as far as recent history goes, when compared to the projected rates upwards of 5% by the end of the year, 4.16 actually looked attractive to anyone entering the market.
That certainly does not seem to be the case now, as 4.16% represents the high point of 2017 average mortgage rates back on March 10th. Here’s what the market looked like last week when Freddie Mac reported a third straight week of 2017 lows.
These new and unexpectedly low rates may not be around for long, however, as according to CME Group’s FedWatch tool, a rate hike by the Fed has a 99.6% probability. The rate hike is expected to be another quarter of a percent, from 0.875% to 1.125%. As this increase is all but a foregone conclusion, rates are up a bit but still firmly below four and incredibly attractive to any buyer who has not yet locked in their rate.
While it seems unlikely rates will reach their original projections of 4.5+, they will likely raise to at least above 4.0 in the coming months so the time is now to lock in your rate if you’re in the marketplace. Part of the determining factor of just how high rates will reach by the end of the year will be revealed during the Fed’s two day meeting starting tomorrow, depending on how many more times the Fed is expected to raise rates in the near future.
The purpose of the Fed raising rates at all is to keep inflation in check. However, the country is tracking with year-over-year inflation of 1.5%, well below the Fed’s ideal rate of 2%. The most recent jobs report was also underwhelming in terms of new jobs created, which is another reason for the Fed to take it easy as they ideally want to strike a balance of healthy economic growth. Originally it was expected that the Fed would be raising rates up to 1.375% by the end of the year. That may no longer be the case, which could keep mortgage rates in check for more than just the short term.