Great News for Housing
In the latest meeting for the Federal Reserve, they decided to leave the Federal Funds Rate unchanged for now. Late last year, they had predicted 3-4 more rate hikes in 2019, but for now, economic conditions are allowing them to “put the brakes on” any new rate hikes. This change in their plans produced an immediate positive reaction in the bond market, with the yield on the 10 year treasury rate to drop to its 14 moth lows. Mortgage rates are responding accordingly, and we are seeing our most favorable rates in the last year-plus right now.
The Federal Reserve officials indicated that they are unlikely to raise interest rates this year and may be nearly finished with the series of increases that began more than 3 years ago, now that US economic growth is showing signs of slowing. “It may be some time before the outlook for jobs and inflation calls clearly for a change in (interest rate) policy,” Fed Chairman Jerome Powell said yesterday. Mr. Powell cited mild inflation pressures, a sharp pullback in financial risk-taking and clear threats to US growth in explaining the new wait-and-see stance after the Fed meeting in late January. The Fed’s shift has come as inflation fell shy of the officials’ estimates last year that it would rise above their 2.0% target rate. There is now downward pressure on inflation globally. Fed officials believe that 2.0% inflation is consistent with a healthy economy. They see inflation much lower than that as a sign of weak economic demand.
Since 2015, the Fed raised rates on the theory that declining unemployment would eventually generate stronger price pressures. This framework dictates that, even with inflation running below the Feds 2.0% target, the probability of higher future inflation demanded pre-emptive rate increases. The new projections show the officials continue to revise downward their thinking about the point at which the unemployment rate is consistent with stable prices. The officials’ median rate for this metric fell to 4.3% Wednesday-down from 4.5% a year ago and 4.8% in 2016. This revision suggests the economy can employ more people without risking an acceleration of inflation.
But while the Fed Chairman said he still expects solid growth, he noted recent data, such as retail sales, business investment, and job growth have been downbeat. Officials’ median projection for growth this year has dropped to 2.1% from 2.5% in September of 2018. Core inflation has slipped back below 2.0% and inflation expectations have sagged.
Mortgage rates range between the mid to high 3’s for the short term fixed (5,7,10 year) mortgages and in the low to mid 4’s, for the 30 year fixed rate mortgages. Historically, those are very good rates. This should be a real positive for the housing market.
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