Officials at the Federal Reserve are looking to return to a more “traditional” policy as unemployment in the United States falls to 6.6%, according to James Bullard, President of the St. Louis Federal Reserve Bank.
Bullard expects the Fed to reevaluate its forward guidance on the United States monetary policy. With unemployment continuing to fall, Bullard says that the Fed will start to make “more qualitative judgments” on when it should tighten policy as opposed to looking at unemployment thresholds. This new approach is said to take a more all encompassing look at the health of the economy and the labor market.
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Interest Rates
Fannie Mae and Freddie as well as the National Organization of Realtors were all expecting interest rates on 30-year home loans to rise by about 0.3% in the first quarter of 2014. But one of the reasons that this didn’t happen is that 10-year treasury yields which help benchmark mortgage rates shrank as investors sold off bond shares.
This period of bond selling ended on February 5th as almost 6.4 billion dollars worth of wealth disappeared from emergency equity market funds. It was one of the fastest sell-offs since 2010 according to Citigroup. The Dow Jones Industrial Average fell around 1000 points over just a few days, but much of the gains have been recovered.
The average interest rate for a 30-year fixed interest loan fell to 4.23% at the end of last week, providing a rare opportunity for those who have been looking to refinance or purchase a home. Instead of rising by 0.3%, rates actually fell by 0.3% from where they were at the beginning of 2014.
Finding Opportunities
It’s good to be prepared to act on getting a home loan while interest rates are still low. A number of homeowners are doing just that this week in anticipation that interest rates will once again continue on an upward trajectory. You never know when an opportunity like this will come again.
“People are getting a second chance, and that is bound to give a boost to the housing market,” said Sam Khater, deputy chief economist at CoreLogic Inc., an Irvine, California-based mortgage data and software firm. “It’s not a game changer unless the emerging markets situation worsens and rates get even cheaper.”
There are always a number of different factors that go into determining where interest rates will be. The Fed’s decision to take set aside unemployment thresholds for determining policy will obviously have some effect. What is clear thus far is that as the Fed continues to pull back stimulus spending, interest rates are more likely to climb.
Many economists are still anticipating interest rates to be around 5% by the end of the year. But so much remains unknown that could either push that number higher or lower. Turmoil over European debt and continuing instability in Syria are just two factors that could send shockwaves through the market. If you’re evenly remotely interested in buying a home this year, it’s better to move sooner rather than later. Numerous signs point to rates increasing, despite any uncertainty that may otherwise be present.
