Tuesday August 18, 2015
For months now, people have been watching the Federal Reserve to see what’s going to happen with interest rates. Since June ended with no rate hike, all eyes are on September for the first US interest rate hike in nine years. Which means that all the Nervous Nellies are clutching their pearls and wondering whether the economy is ready for it and how it will affect mortgage rates.
Fed Chair Janet Yellen acknowledged this week that “improving energy prices, more moderated dollar strength and a thriving labor market all suggest interest rates should be raised sooner rather than later.”
But timing a rate hike is hardly an easy task. As one economist noted, “This is a particularly tough one to do, because they could get it wrong either way. You get it right, and everyone ignores you. You get it wrong, and everybody blames you.”
Getting interest rates “right” would allow the economy to continue to grow, but would likely go unnoticed by everyday consumers. Getting it wrong, in a worst-case scenario, could restrict consumer spending and ultimately plunge the economy into another recession.
Bottom line for homebuyers? Even if a rate hike does take place, it’s not likely to send mortgage rates soaring. It’s likely the Fed will go with small increases to test the waters, so the affect on mortgage rates should be negligible. However, experts say that the expected long-term trend is for mortgage rates to begin going up, and keep going up. And since housing starts are up 27% since June 2014 – it looks like buyers aren’t wasting any time; they are ready to buy – before rates go up!