Mortgage rates got a reprieve yesterday when the Federal Open Market Committee (FOMC) declined to raise rates for the 6th time this year. The target federal funds rate range has been between zero and 0.25 percent since 2008. The current effective rate is 0.14 percent.
The U.S. economy has improved with increases in household spending and an improved housing market. The under-utilization of labor is also diminishing. All are signs that would normally point to a moderate rate increase. But with global uncertainty surrounding many markets, especially in China, the Fed voted to leave the rate unchanged. However, it was not a unanimous decision. Jeffrey M. Lacker, president of the Federal Reserve Bank of Richmond voted in favor of a rate increase suggesting an increase of 25 basis points.
As of September 2015, the national average for a 30-year fixed mortgage remains unchanged at 3.84 percent, according to Bankrate.com. If the FOMC decides to increase the federal funds rate by the end of the year, mortgage interest rates could rise as high as 6 percent in 2016. Some analysts are predicting that this could put downward pressure on housing prices. “Uncertainty in the equity markets — even if the Fed raises short-term rates in September — could stabilize long-term mortgage rates and preserve affordability for buyers,” mentioned Lawrence Yun, NAR chief economist. “Overall, the prospects for ongoing strength in the housing market remain intact for now. The U.S. economy is growing — albeit at a modest pace — and the labor market continues to add jobs.”
The FOMC will have two more opportunities to vote on a rate increase when they meet again in October and December leading many to speculate that interest rates may actually increase by the end of 2015.
The housing market remains strong with a near term positive outlook. The Pending Home Sales Index increased slightly in July to 110.9, a 0.5 percent increase, according to the National Association of Realtors® (NAR). “While demand and sales continue to be stronger than earlier this year, Realtors® have reported since the spring that available listings in affordable price ranges remain elusive for some buyers trying to reach the market and are likely holding back sales from being more robust,” added Yun.
Condominium and single family home sales increased nearly ten percent to 12,384 units in July in the nine-county Chicago Primary Metropolitan Statistical Area, based on figures released by the Illinois Association of Realtors®. The median price surged four percent to $226,700 during the same period. In the City of Chicago, the number of home sales stopped short of the 3K mark at 2,989 homes, a nearly ten percent increase from last year. The median home price in the City surged 5.2 percent to $285,000. “We’ve seen solid gains throughout the year, and there is every expectation that we’ll see the market momentum continue into the fall as buyers select from reduced inventories,” said Hugh Rider, president, Chicago Association of Realtors®.
While the near term outlook is good, Realtors® who want to advance their career in real estate will want to use this window of opportunity to hedge against any potential increase in mortgage rates by maintaining sufficient inventory and working with as many buyers as possible.