Uh oh...here it
comes again. There’s speculation the Fed could raise interest rates a hair and some
are getting nervous.
But if you look back at last June
the scary scenarios that emerged with the buzz about a rate hike never
materialized.
(a "chicken little" post in 2015
When the Federal Reserve’s feared “hammer”
of a 0.25 % hike last December fell on the market the sound could barely be
heard across the room at its Washington headquarters.
Among the other chicken little
headlines that swept various media, CNN Money observed at that time that although
the rate increase was small “...it will affect millions of Americans, including
investors, homebuyers and savers....Mortgage rates will gradually rise."
Well, let’s check that prediction:
As posted by the website Mortgage
News Daily the June 2015 rate for a 30-year fixed mortgage was 3.98%. In
January of 2016 after the Fed’s December hike the rate was down to 3.67%, and few
days ago this May it was 3.57%.
So the Mortgage News Daily
statistics show that the 30-year rate is 0.10% lower than just after the rate
increase. The 15-year fixed and 5/1-year ARM also decreased, although the 1-year adjustable rate mortgage (ARM) did increase by
0.30%,
Cory Benner and Derek Bickel,
mortgage specialists at EverBank of Bend, the regional office of the national
banking firm, explain what has happened to those fears of rising interest
rates.
“The most common misconception is
that mortgage rates will rise when the Federal Reserve raises their rate. While
this would seem intuitive, for several reasons this often isn’t the case,” Bickel
notes.
To clarify, Bickel emphasizes that
the Fed’s rate is short-term and that an increase will have minimal effect on
the lifetime of a 30-year mortgage. The long-term mortgage rate is the product
of buyers & sellers of mortgage backed securities, with inflation expectations the predominant
factor in the trading.
“When the Fed raises interest rates,
mortgage interest rates often actually
fall, Bickel emphasizes. “The main reason is that the rising
Federal Funds rate will reduce the expected inflation.
“If you are the lender, inflation
erodes the value of your money over time (just imagine what $100 could buy
today versus 30 years ago!) So, if inflation is higher the mortgage rate needs
to be higher as well to compensate. And as inflation expectations go down, so
do mortgage rates.”
Freddie
Mac interest rates
|
|||
Month -
Year
|
|||
June-15
|
Jan-16
|
May-16
|
|
30
Yr. Fixed
|
3.98%
|
3.67%
|
3.57%
|
1
Yr. ARM
|
2.54%
|
2.38%
|
2.68%
|
15
Yr. Fixed
|
3.19%
|
2.99%
|
2.81%
|
5/1
Yr. ARM
|
2.99%
|
2.89%
|
2.78%
|
Source:
Mortgage News Daily-May 18, 2015
