FOMC Recap: March 2017

Today’s FOMC meeting in Washington, DC met expectations by moving forward with a new rate hike. The federal funds rate increased from 0.75 percent to 1.0 percent. This quarter-percent rise indicates the Federal Reserve’s growing confidence in the nation’s economy as it tries to normalize interest rates little by little. The last increase took places in December 2016, and two more are expected throughout 2017.

FOMC Decision and Mortgage Rates

The federal funds rate refers to the interest rate at which financial institutions lend to each other over night. So while the Fed’s decision doesn’t directly move home loan interest rates up, the effects do bubble out to impact all interest rates, including mortgages. This move doesn’t affect you if you already have a fixed mortgage rate and have no immediate plans for refinancing. But if you’re currently looking to buy a property in the California real estate market, your loan terms will likely be affected. Matthew Pointon, a property economist at Capital Economics, told Fortune that average mortgage rates throughout the country could jump up to 4.5% in the next two weeks, compared to an average of just 4.21% last week.

Historical Standards for Mortgage Rates

Just because the Federal Reserve announcement signaled a quarter percent rate hike doesn’t mean it’s prudent to jump into a major life decision too soon. Today’s rates are still well within historical lows. Many homebuyers have become accustomed to ultra low rates since the onset of the Great Recession. This is particularly true if you bought or refinanced in 2012 or 2013, when rates averaged as low as 3.35%. But historically, that’s simply not the norm. Pre-recession rates settled in the 6% range and anywhere between 7% and 8% was the norm throughout the 1990s. The 1980s saw even higher mortgages rates, with 1984 rates averaging 13.88%. So in reality, it’s still a great market in terms of new mortgages.

California Housing Market

California continues to perform as one of the most sought-after real estate markets in the country. In fact, 12 California cities ranked as part of Realtor.com’s hottest 20 markets for February. Vallejo, San Francisco, San Jose, San Diego, Sacramento, Stockton and Yuba City made it in the top ten, while Modesto, Oxnard, Fresno, Santa Rosa and Los Angeles ranked as well. While this does indicate a seller-friendly environment, it really is a testament to the value of purchasing California real estate.
Since it is such a competitive market and rates are beginning to fluctuate, it’s important to get your financing in order before you fall in love with a house. Talk to a loan officer about the type of property you’d like to buy and start getting your paperwork in order so you can get pre-approved. This simple step automatically strengthens your offer when you do find the perfect home. Plus, some sellers may not even consider your offer if you haven’t received a pre-approval letter.
Want to find out next steps on getting pre-approved? Talk to one of our mortgage bankers now.