A Fed Year
Seinfeld spent just about a whole episode discussing how late in the year it is appropriate to wish someone “Happy New Year.” We promise this will be our only Happy New Year message. But we do have a similar economic question to ponder as we enter the year. How long until we know what type of affect the Federal Reserve Board raising rates will have on interest rates and the economy?
As we indicated before, some of the effects are immediate. The prime rate was just increased by banks for the first time in almost ten years. For those who have home equity lines of credit on their homes or credit cards based upon their bank’s prime rate, rates will go up immediately. A small increase of .25% on a $10,000 balance amounts to only a few dollars per month. If the Fed continues to raise rates this year, these effects will be multiplied, obviously.
The affect upon real estate is quite different. Most home loans are fixed rates and thus based upon long-term interest rates which don’t necessarily increase at the same pace as the short-term rates the Fed are raising. According to Freddie Mac’s chief economist, Sean Becketti, interest rates should remain at “historically low levels” throughout 2016, in spite of whatever moves the Federal Reserve is expected to make. While any increase in rates on home loans is certainly not good news, we have to remember that rates are still at “historically low levels” as Becketti says, and the fact that the Fed is taking action means they have confidence in the economy. If the economy continues to expand, real estate will continue to thrive as will the economy, despite the Fed’s moves.
The Monday Market Update
Rates on home loans moved slightly higher this past week, with 30 year fixed rates over 4.0% for the first time in five months. Freddie Mac announced that, for the week ending December 31, 30-year fixed rates rose to 4.01% from 3.96% the week before. The average for 15-year loans increased slightly to 3.24%. Adjustables were mixed, with the average for one-year adjustables unchanged at 2.68% and five-year adjustables rising to 3.08%.
Attributed to Sean Becketti, chief economist, Freddie Mac — “In the final week of 2015, Treasury yields jumped, reacting in part to strong consumer confidence in December. In response, the 30-year fixed rate rose to 4.01 percent, ending a 5-month span below 4 percent. After averaging 3.9 percent in the fourth quarter of 2015, we expect the 30-year fixed rate to average 4.7 percent for the fourth quarter of 2016.”
Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.