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Fed minutes put June rate hike back on the table

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According to the weekly Freddie Mac Survey, mortgage rates were little changed as the average rate on a 30-year mortgage ticked up to 3.58 percent from 3.57 percent last week. Expect that to change significantly next week, as rates have been moving higher after Wednesday’s release of the minutes from the latest Fed meeting, showing a more hawkish tone. Since the Minutes were released, the yield on the 10 year note has risen to 1.86 percent from 1.71 percent. Mortgage rates typically don’t increase as much as other interest rates in a rising rate environment, so we expect to see average 30 year mortgage rates increase by about .125 percent to about 3.70 percent.

While a move by the Fed is certainly not a foregone conclusion, the Fed put the market on notice that it is a possibility. The markets responded accordingly and now interest rate futures markets are indicating a 65 percent probability of a 25 basis point hike in one of the next two Fed meeting. There are several key data points being released in June that will influence the Fed decision makers, including: ISM Manufacturing, Retail Sales, and of course the Employment Report.

While questions remain about the direction of interest rates, the spring home buying season is off to a fast start. According to the National Association of Realtors, Existing Home Sales climbed 1.7 percent in April to an annual rate of 5.45 million, led by an increase of 12.1 percent in the Midwest. The average price of a home sold was $232,500, over six percent higher than one year ago. Since the financial crisis, the rate of home ownership has rapidly dropped to a more sustainable level of 63 percent. It’s also worth noting that housing affordability has remained well above the historical average since March 2009.

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