PHH Home Loans Blog

The Fed Turns the Rate Clock Forward

March 17th, 2017

- and what it means

On March 15, the Federal Reserve raised its key interest rate from a range of .75% to 1.0%. The increase was expected by Fed watchers based on continuing strength in the economy, most recently after a particularly strong jobs report was released on March 13. A rate increase is, in a sense, a good thing in that it marks the Fed's greater confidence in the economy's ongoing strengthening - but that strengthening is also the harbinger of inflation, which the Fed seeks to stay ahead of with these actions.

The effect of these changes that is most important to you and your buyers is how this affects mortgage rates and their ability to purchase a home. The thing to know about the markets is that they are always factoring in the future before it arrives - for instance, there were already hints from previous data that the job report would be solid so rates didn't skyrocket on the day of the announcement.

The Fed is well aware of this fact when it makes its own announcements, knowing that the impact is going to be gradual - and that's really the thinking. Economic growth, inflation, etc., don't happen overnight - a rate increase is essentially a "spotter" for the economy's gymnastics, helping to ensure that nothing goes wrong with the floor exercise and, if it does, that it's there so that any damage is minimal.

With that being said, your and your buyers' question is, "What's going to happen next? Buy now? Wait?"

The answer is the same as it ever was: "It's up to you, Mr. and Ms. Buyer." Here we are today with rates in the mid-4.0s - could they rise? Fall? The thing to understand - and the conundrum facing economic pundits - is that the markets, all of the markets, are subject to not just one but multiple impacting factors. Let's run down just a few: uncertainty about the course of the Trump administration in terms of domestic and foreign finance policies, reaction to those policies from our trading partners overseas and on our own continent, rumblings from North Korea, China's expanding political and military sphere of influence, ongoing Middle East crises. Again, these are just a few and the ones with which we are most familiar.

One, some or all of these could see your buyers go to sleep one evening with mortgage rates at 4.35 and wake up the next morning with them at 4.45 - in other words, there is nothing predictable but unpredictability. Financial investment professionals typically shake their collective heads against the notion of "chasing performance" - performance always finds a way to stay a step ahead. Similarly, buyers should stick with their plan and not try to chase after mortgage rates - to repeat: there is as good of a chance that they will go up one day as down the next. If now is when they want to buy a house, then now is when they should buy it - if their lives dictate it needs to be in a month or a year, then that's the plan to which they should stick.

Your role, as always, is to help keep them focused on their task, buying a house, and encourage them to work with someone whose job it is to keep an eye on the markets and mortgages for them: an experienced home loan professional. A lending expert will provide them with the guidance they need to get the right mortgage at a rate that will allow them to buy the house they want.

This is not a commitment to lend. Loan programs, rates and terms subject to change without notice and are subject to property and credit approval. For informational purposes only. Restrictions may apply. Your real estate professional is not a mortgage lender. Please contact your Loan Officer for information about mortgage products and your eligibility for home financing. PHH Home Loans, LLC, 1 Mortgage Way, 3rd Floor, Mt. Laurel, NJ 08054. NMLS ID # 4256 (www.nmlsconsumeraccess.org). Arizona Residential Mortgage Licensee #BK 0907270; Licensed by the Department of Business Oversight under the California Residential Mortgage Lending Act; Illinois Residential Mortgage Licensee #MB.6759865; 100 W. Randolph, 9th floor, Chicago, IL 60601, 800-532-8785; Minnesota - This is not an offer to enter an interest rate lock-in agreement; Missouri in state office located at 2458 Old Dorset Road, Maryland Heights, MO; Ohio Certificate of Registration MB.804019. Equal Housing Lender.
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