Over the last few months, there has been plenty of concern in the housing market – among lenders and consumers alike – about what would happen to the sector if mortgage rates were to rise sharply starting in October. Fortunately, the Federal Reserve Board's Federal Open Markets Committee did not end up increasing the federal funds rate, largely as a result of its belief that the economy had not recovered enough to support such a change. But when such a vote arises again in December, all bets are off.
Indeed, most experts believe that, by that time, the economy – especially in terms of jobs numbers – will have sufficiently recovered to support an increase the federal funds rate. That, in turn, could lead to mortgage rates rising sharply just before the end of the year. However, some experts point out that such a change might have little to no impact at all on mortgage rates, because for one thing the federal funds rate really only ends up impacting rates on shorter-term lending options like auto loans, and for another, mortgage rates have already been on the rise for some time.
What's the issue?
For the past several weeks, mortgage rates have been slowly ticking up regardless of any apparent involvement in the market, and now stand at some of the highest levels seen this year. This is perhaps going to be surprising for consumers, but sometimes what happens has very little to do with the fact that the Fed's decision came or didn't come. In the last few years, when the Fed was looking to end its bond-buying quantitative easing efforts, rates rose before that initiative even came to an end, largely because the mortgage market was simply anticipating that rates would rise.
What could actually happen?
However, because the federal funds rate doesn't usually end up impacting mortgage affordability one way or the other, these recent increases might actually just be the market settling toward rates that more resemble pre-recession norms. Moreover, when the Fed's FOMC does vote to raise the federal funds rate, the actual impact on mortgage rates could be minimal, non-existent, or – according to some experts – negative. In the latter scenario, an increase in the federal funds rate would actually bring mortgage rates down again after recent increases.
It does remain difficult for experts to actually predict what's going to happen next month, when the FOMC votes on this issue. The general consensus is that the vote will increase the federal funds rate, but what impact that has on the mortgage market remains to be seen.
As a consequence, it might be wise for consumers looking to buy or refinance these days to get into the market as soon as possible, cutting down the uncertainty of the future while still also taking advantage of some of the best mortgage deals in the sector's history.
To receive a free quote, simply visit www.capwestmortgage.com/quote or call (866) 614-5959 to speak with a CapWest Mortgage representative today.