image of interest rate hike could mean lower mortgage rates

The latest Fed interest rate hike could actually mean lower mortgage rates. (Brendan Smialowski / Getty Images)

Yesterday the Federal Reserve announced that it would increase its overnight interest rate target by a quarter of a percentage point. Though higher interest rates can be bad news for those hoping to borrow money for a home, the latest Fed announcement was widely expected and was already reflected in the rates banks charge on fixed-rate mortgages.

Instead, much of yesterday’s news from the Federal Reserve is likely to lead to lower mortgage rates over the coming weeks, or at least to limit their rise. Members of the Fed’s rate-setting committee revised the number of expected interest rate increases in 2019 down from three to two. In a press conference, Fed Chairman Jerome Powell acknowledged broader concerns over the ability for the U.S. economy to continue growing. These concerns have sent stocks lower in the past few weeks and pushed mortgage rates lower, too, with the average rate for a 30-year fixed mortgage falling to 4.63 percent last week from a seven-year high of 4.94 percent the week of Nov. 15, according to data from Freddie Mac.

Though Fed policymakers envision making two additional rate increases in 2019, it’s unclear the extent to which this will mean higher mortgage rates for home buyers. In September, when the Fed last surveyed Wall Street trading desks and investors on future mortgage rates, the median expectation for the 30-year fixed-rate mortgage was only 5 percent, just above the average rate of 4.63 percent heading into this week’s Fed meeting. While it will take a week or two to gauge the effects of the latest Fed news on mortgage rates, longer-term interest rates fell in reaction. Yields on the 10-year U.S. Treasury note, which peaked at 2.86 percent just before news of the Fed’s interest rate hike, fell to 2.77 percent by the end of the day’s trading.

The Fed’s uncertainty over future policy means that big economic news could cause major swings in mortgage rates going forward. Instead of focusing on whether the Fed will increase rates at any one its eight meetings in 2019, buyers should instead be mindful of the employment figures released on the first Friday of each month. With markets and policymakers watching these numbers closely, any surprises in them will likely have major implications for those trying to lock in a rate on a mortgage.

Rapidly fluctuating mortgage rates are just one piece in the puzzle facing New Yorkers who hope to buy a home in 2019. Falling sales prices and rising inventory are giving buyers the upper hand. Should economic news worsen, prices are likely to slump further, and mortgage rates may adjust downward to a weaker economic outlook. We stand by the advice we’ve been giving buyers since July: be patient, be picky, and be prepared to negotiate. Given the market’s tendency to fluctuate, and the difficulty of finding a NYC home on budget, shoppers should focus on meeting their own needs, rather than trying to time the market.

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