Tag: Federal Reserve

Rates Are Falling, Comets Are Rising, Is It Time to Refinance?

Posted on by LeAnn Raschke

The Fed made its move, so now what? Should you refinance, buy, panic or just light a candle and manifest better snacks and cozy blanket before the ol’ Atlas comet swings by?

Let’s get grounded before you start building that bunker.

 

The fed rate isn’t your mortgage rate

The Fed controls short-term interest rates on things like credit cards, HELOCs and business loans.

Your mortgage rate, however, lives in it’s own universe, tied to long-term Treasury yields and inflation trends. So while the Fed’s cut might sound dramatic, your 30-year fixed rate probably just shrugged and went back to watching the skies.

Mortgage rates are stubborn

You’d think a Fed cut would send mortgage rates tumbling. But no, they’re still hanging around 6%+, which feels better than last year’s 7%-plus disaster but nowhere near the good old days of 3%.

In short: don’t expect a miracle. Mortgage rates take their sweet time adjusting, especially on their way down.

Refinancing might make sense, if it’s worth it.

Basically, don’t refinance just because everyone on the internet is screaming about a rate drop.

If your current rate starts with a 7, you might want to talk to your lender. But if you’re in the mid-6s, refinancing might save you a latte a week, not a lifestyle.

Rule of thumb: You want at least a 0.75–1% drop between your current rate and the new one and you need to plan to stay in your home long enough to recoup closing costs.

ARM borrowers are the real winners

If you’ve got a HELOC or an adjustable-rate mortgage, congrats!  You’ll likely see a small dip in your payment soon. It won’t fund a bunker, but maybe it’ll buy you a case of wine to watch the comet with.

Stop trying to time the market – or the end of the world

Waiting for the perfect rate is like waiting for the perfect apocalypse: unpredictable, stressful and probably not coming the way you think. If refinancing now improves your finances or gives you some peace of mind, do it. If not, sit tight, uncertainty is the only thing we can count on.

The Fed’s cut is a cautious step, not a cosmic reset.

Mortgage rates could drift lower, but they might just hover for a while. So take a breath, check your numbers, and make smart moves, not panic moves.

Comet or not, clarity beats chaos every time.

The Rationale Behind Federal’s Decision to Keep Interest Rates Unchanged.

Posted on by Mel Dorman

Background behind Interest Rate Policy

 

If you are a buyer in today’s market, you are aware of the increase in prices over the last few years (especially in Portland). After the big 2008 crisis, I often get the question “When is the next big downturn turn in the market?”. While I cannot predict the market, it is important to recognize that price is not the only factor when you consider buying. After all, your monthly payment is a combination of price and interest rate. Historically, we are still at a very low interest rate as compared to decades prior when 17% was the norm. Even if you are worried about declining prices in the future, it’s worth considering the opportunity of locking in a very low rate. This is particularly true if you plan to keep the property for several years, allowing for a recovery in the price should we face a dip in the market in the coming years. Below is an overview of how the interest rate is set in our market.

The US Federal Reserve raises or lowers interest rates through its regularly scheduled Federal Open Market Committee (FOMC).

FOMC is the monetary policy arm of the Federal Reserve Banking System. The FOMC sets a target for the Federal Funds Rate after reviewing current economic data.

Fed’s analyzes various parameters of economy like condition of inflation, labor market situation, demand for loans etc.

On the basis of these parameters the FOMC members make decision regarding the interest rates.

The fed funds rate is the interest rate banks charge each other for overnight loans. Those loans are called Federal Funds.

 

Recent decision

The Federal Reserve members voted unanimously on 03/30/2019 that the FOM Committee is to leave interest rates unchanged in the range of 2.25% to 2.5%.

The present scenario also gives a clear message that the policy makers are not in any hurry to change the interest rate policy soon.

 

Further Analysis

Among the 17 Committee Officials, 11 of them think an increase in interest rates will not be needed at all during this year (exciting news for buyers!).

The present condition of slow down in the U.S. economic growth is the primary reason behind this.

There were a series of change in interest rates which started more that three years ago.

 

Previous Changes in rates

The Fed raised rates four times in 2018 — the latest time in December 2018.

At that time it boosted the federal funds rate to a range of 2.25 percent to 2.5 percent.

 

Previous Expectation

In December 2019, committee members projected that there might be two interest rate hikes in 2019.

But as of now, of the 11 Fed officials, six anticipate just one rate hike later in the year, the other five forecasting no change at all during this year.

 

Condition analysis

Strong Labor Market Condition and Economic Activity

The committee said in a post-meeting statement that the country’s labor market situation remains strong and it is a positive factor.

They evaluated that the economic activity has slowed from its solid rate in the fourth quarter.

The slow economic activity is due to sluggish spending by households and because of reduced business investment.

These two are indirectly contributing to the slowing economic growth and are causing declining inflation.

Officials also updated their economic projections of number of increases they foresaw for 2019 from two to zero.

The recent decisions can affect interest rates on everything from credit cards to mortgages, as well as the interest rates on savings.

 

Business Trend and Activities

As per Federal Chairman; trade tensions, Brexit and the recently ended government shutdown raised uncertainties for the economy.

In recent surveys, business and consumer sentiments have declined, giving the Fed further reasons to be cautious.

While still low, the unemployment rate inched up to 3.9% in December. It is a positive factor.

Final words:

Overall, the Federal Committee has decided to leave interest rates unchanged and expect an increase in interest rates will not be needed this year. If you are on the fence about buying, I would encourage you to consider to opportunity of locking in a low rate!

 

Melissa Dorman is a Licensed Broker in Oregon and Washington with Yascha Group at Living Room Realty in Portland, OR. Follow Yascha Group  on Facebook.