Wealth Advisor Rockville, MD
In a unanimous move that coincides with market expectations and demands, on March 20 the Federal Reserve’s policymaking Federal Open Market Committee decided to hold interest rates steady and indicated that there will be no more hikes this year unless conditions change significantly, despite the central bank saying just three months ago that two hikes would be appropriate in 2019.
Federal Reserve Chairman Jerome Powell also announced that “the Fed” would end the so-called runoff of bonds from its balance sheet sooner than most expected. That caused the yield on the 10-year Treasury to tumble. Mortgage rates loosely follow that yield.
After the announcement, 10-year Treasury yields fell to their lowest level in a year. Mortgage rates roughly follow that yield so after announcing that it would be getting into the bond-buying business once again, mortgage rates plummeted.
Chief operating officer of Mortgage News Daily wrote, “This is about as big of a change as anyone expected. It means the Fed will be buying more bonds more quickly. And bond buying results in lower rates, all other things being equal.”
According to Mortgage News Daily, the average rate on the popular 30-year fixed mortgage, which had been sitting at 4.40 percent, dropped to 4.34 percent, which is the lowest rate in over a year and 19 basis points lower than a year ago.
In November 2018, the mortgage rage shot up to over 5 percent, which caused home sales to decline drastically in December 2018 and January 2019.
Even slight mortgage rate changes can have a huge impact on home sales often because of the rising home prices. To break things down: If you have a 30-year fixed rate on a $300,000 mortgage, every 25 basis point move down would equate to $50 savings a month. Since the rate has gone down about 75 basis points from November, that equates to a $150 monthly saving, which means the mortgage rate drop helps future buyers and current owners who can benefit from refinancing.
The drop in rates helps both potential buyers and current homeowners who might be able to benefit from a refinance, but there’s a double-edged sword to this benefit—the reason the Federal Reserve isn’t raising the rates is because the U.S. economy is weakening, reports CNBC.
Danielle Hale, chief economist at realtor.com, told the site, “While a plus for homebuyers, if concerns about the economic outlook rattle consumer and homebuyer confidence, it could offset the benefit of lower mortgage rates.”
A true caveat emptor moment.
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