The Federal Reserve recently raised interest rates. That is the first time they’ve done that in about 10 years. Gasp! That must mean that we’ll all be paying higher interest rates and our hot real estate market will cool down, right? Actually, since the Fed raised rates, actual mortgage rates haven’t changed that much. Maybe up a little. So what gives?
One of the biggest myths in the financial realm is that the Fed controls mortgage interest rates. They absolutely do NOT. They do control some of the levers that influence mortgage rates. However, the rate your lender quotes you depends most heavily on what the bond market is doing. The bond market looks forward 5, 10, 20+ years in the future. At the moment, the bond market isn’t betting on big increases in rates, so mortgage rates are still down near historic lows.
The threat of a global economic slowdown is still looming large in many investor’s eyes. As I write this article, stock indexes across the world are tanking to start out 2016. Historically when this happens, there is a “flight to safety” as investors move their money from stocks to US government bonds. This means the government can offer lower rates of return and still get investors to buy their bonds.
On the flip side, China is having major problems right now with their economy and their currency value. Over the last few years they were buying billions of dollars of Treasury bills, which helped keep rates low. But now, in an effort to prop things up, they have started selling billions of dollars of Treasury bills. That may have some upward pressure on rates if that continues. So we very well may see interest rates creep up this year, but most “experts” don’t think it will be a big increase.
If you have any questions on this or any other real estate topic, please feel free to call me at 831-295-8509.
Additional thanks to Carl Zanger in our office for research on this post.