federal Reserve confirmed on Wednesday that its next key federal funds rate hike would depend on incoming data. In turn, economists and housing industry experts have now turned their attention to the June meeting, as the decision will dictate the future movement of mortgage rates.
Thank you for reading this post, don't forget to subscribe!Experts said the Fed’s move on Wednesday was expected and should not lead to major changes in mortgage and other interest rates.
Mortgage rates should drop, as the bond market hasn’t really cared much about the last few rate hikes by the Fed. In turn, mortgage rates should come down, Logan Mohtashmi, principal analyst housing wireSaid.
Mohtashmi expects the Fed to hold off on interest rate hikes at the next meeting, as the central bank is counting on credit to create a job slowdown.
The effect of credit tightening by Fed officials has been unclear, given both high interest rates and turmoil in the banking system. Silicon Valley Bank And Signature Restrictionsk in early March. Federal regulators also seized First Republic Bank And earlier this week sold it to JPMorgan Chase Bank.
Bonds rallied immediately after the news, driving down yields as the market interpreted the Fed’s signals as a sign of a pause in tightening.
“2-year and 10-year US Treasury yields are down 2-3 basis points, which could help mortgage rates as the market digests and adjusts to the news,” Jack McDowell, chief investment officer Palisades GroupSaid.
Mortgage rates for a 30-year fixed-rate mortgage stood at 6.43% as of Wednesday afternoon, according to HousingWire’s Mortgage Rates Center.
“If the economy picks up and the banking crisis doesn’t get worse, it could force the Fed to start raising rates again. However, for now, they seem fine to stay here,” said Mohtashmi.
Daniel Hale, Chief Economist realtor.comwas on the same page with Mohtashmi about Wednesday’s rate hike decision, noting that mortgage rates are unlikely to change dramatically.
Hale said that if economic indicators are lukewarm, this should lead to a more sustained, gradual decline in mortgage rates – as the Fed is less likely to continue raising rates.
“However, higher-than-expected hiring, price increases or other economic activity could cause mortgage rates to rise in anticipation that tighter Fed policy will be needed,” Hale said.
Increases in short-term rates only have an indirect effect on mortgage rates, because mortgages cost less than longer-term rates. But when the Fed raises interest rates, it becomes more expensive for families to get loans to buy homes.
mortgage bankers association (MBA) also expects the Fed to hold off on a rate hike in June, noting that the Fed’s statement was consistent with plans to hold rates at this level.
“Although recent speeches from Fed officials indicated a growing amount of disagreement about next steps for policy, this was another unanimous vote,” said Mike Friantoni, MBA chief economist.
Despite expectations of an economic slowdown, expectations of continued rate hikes have kept Treasury yields high. This, in turn, has kept mortgage rates high, Shampa Bhattacharya, senior director Fitch Ratingsnoted.
“The home buying market is more sensitive to reductions in mortgage rates at current rate levels, with refinancing options still out of the money for most homeowners (…). Bhattacharya said mortgage application data as well as Active listings have shown positive weekly growth in response to some recent low rates, although applications remain down 28-30% year over year.
Impact on Housing and Housing Loans
It is not clear what the Fed’s next decision will be, but the MBA is expecting a pause in rate hikes.
“If the central bank pauses its hike in June, potential homebuyers and their mortgage lenders may heave a sigh of relief,” Frantantoni said.
While tighter credit conditions are expected to slow economic activity, the housing sector is already operating under tight credit, Fratantoni said.
MBA doesn’t expect tighter credit headwinds to offset gains from lower mortgage rates somewhat. The MBA said the housing market is pulling the economy out of this downturn, as it usually does.
Looking ahead, Hale expects the remainder of May to be a rocky ride for interest rates, including mortgage rates.
“The Fed continues to be cautious, watching for signs that financial sector stress has affected the real economy. Most likely, this factor will remain a wild card for the next few meetings, as the data continues to roll in.” Will be,” Hale said.
If the Fed raises rates again next month, home buyers will be scared to buy for a number of reasons, says Dutch Mendenhall, founder RAD Diversified REIT, noted.
Because there is still a relatively low inventory of homes for sale, high home prices coupled with high interest rates mean that buyers cannot find the home they want in the current price range.
“Additionally, higher rates calculate to a higher debt-to-income ratio, which results in qualifying for a lower mortgage amount,” Mendenhall said.
However, a higher interest rate environment may provide more opportunities for cash buyers.
“Without worrying about interest rates, cash buyers can be very attractive to sellers, because they know they can close quickly, and as a result, cash buyers find themselves in a better position to negotiate a better selling price.” position,'” he noted.
Regardless of whether mortgage rates will decline or enter a recession, potential buyers have a window of opportunity, says Jeremiah Taylor, vice president of real estate and mortgage services. ojoSaid.
“The spring market has been hotter than expected in many markets, and if you add the fuel of low rates already happening, expect prices and competition to rise sharply,” Taylor said.
