The Fed hike: Mortgage rates mostly flat, but for how long?


Future increases mean it’s a good time to lock in low rates

As expected, the Fed raised interest rates for the first and only time this year at their December meeting, but it had little immediate effect on mortgage rates. However, in a hawkish move, the Fed also altered its forecast for next year to include three rate hikes instead of two, citing “realized and expected labor market conditions and inflation” as justification for the move. This surprising announcement and the volatility of a new U.S. presidency means that 2016’s historically low mortgage rates will probably fade into memory within 2017.

Mortgage rates were up slightly from pre-announcement levels, with the 30-year fixed rate industry average moving from 4.34% to 4.45%. The fact that mortgage rates mostly resisted reaction to the big news isn’t a big surprise, since the .25% hike had been anticipated for much of last year and was already baked into valuation prior to the Federal Open Market Committee meeting.

If there are three more Fed interest rate hikes next year, mortgage rates will also probably increase. And though Fed Chairperson Janet Yellen did not expound on the influences and effects of a new president in the White House, markets in general will act unpredictably until the transition is complete and new economic policies are firmly in place. Prospective homebuyers and those looking to refinance can still lock in mortgage rates that are near historic lows, but the time to act is now.

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