Interest Rates on the Rise
If you’ve been following mortgage rates lately, or even for the past several months, it’s likely you’re either getting ready to buy a home or you’re thinking it’s time to refinance your existing mortgage. If you’re getting ready to buy a home while you’re rate sensitive mortgage rates alone won’t be the primary reason to make an offer. If you’ve made up your mind you’re going to buy you’re checking up on interest rates to see what your monthly payments might be or you’re comparing different loan terms and reviewing different payment options.
If on the other hand you’re seriously thinking of refinancing, either to get out of an adjustable rate mortgage and into the stability of a fixed rate or your current rate is 4.00% or above, you might want to think about locking in current rates when you can as it appears interest rates will be on the rise. If you consider where we were just one year ago when rates were in the mid 3.50% range, recent data from Freddie Mac’s weekly mortgage rate survey reported the average 30 year fixed rate hit 3.94% and have been on a weekly march upward since the middle of September.
When you then consider the current growth of the economy, there’s very little to indicate rates will drop. In fact, the inclination is otherwise. Economic growth can be evaluated when the Gross Domestic Product numbers are released each month. For all of 2016, the GDP increased by 1.6% from the previous years. Economists suggest sustained economic growth to fuel a robust economy requires a GDP number at 3.0% or more. The most recent GDP number reflecting growth for the third quarter of this year came in right at 3.0% when most forecasters predicted something closer to 2.5%. In the previous quarter, GDP also came in at or above 3.0% with a 3.1% reading and there is nothing to indicate a reversal in this trend.
Such numbers should then pique the interest of the Federal Reserve Board which meets every six weeks or so to review the economy and discuss economic and monetary policy. If the Fed thinks the economy is headed for a slowdown then the Fed can lower the Federal Funds rate, lowering borrowing costs for retail banks. If on the other hand it looks like the economy is on the move the Fed can take the opposite approach and increase rates. I’m not sure there’s enough data right now to persuade the Fed to raise interest rates but if positive economic numbers continue we shouldn’t be surprised the Fed will indeed start raising the cost of money.
That said, retail interest rates including mortgage rates always anticipate what the Fed will do and not react to any interest rate adjustments. This means if investors feel a rate increase is imminent, expect them to get ahead of the curve. The adjustment will be gradual so don’t expect any wild rate swings, but if you’re thinking of locking in a mortgage rate for any reason, it might not be a bad idea to take the prudent approach and not wait to see if rates will go any lower.