The Federal Reserve increased the fed funds rate from 0-.25% to .25-.50%. Almost immediately major banks increased their Prime Rate to 3.5%. That will have an immediate affect on many credit card rates and home equity lines.
As I conveyed in my previous blog in September Fed Rate and Affect on Mortgage Rates – May Not Be What You Expect (Video) mortgage rates are impacted by more than what the Fed does.
The Fed Chair Janet Yellen conveyed the median target path of the fed funds rate is potentially:
1.5% 2016
2.5% 2017
3.25% 2018
Actual path of the rate increases will be determined by economic data.
Considerations…
Fed Rates vs Mortgage Rates
- What is the Fed Funds Rate? The Fed Funds Rate is the rate at which banks lend money to each other on an overnight basis.
- Does the Fed does control mortgage rates? NO! Mortgage rates are tied to US Treasury Bonds
- Does a .25 increase in the Fed = a .25 increase in mortgage rates? NO! Wall Street is influenced by the decisions the Fed makes from a high level view on the direction of the economy but investors buy and sell bonds based on their own investment economic strategy & research.
- What rates do go up when the Fed raises rates? The Prime interest rate is tied to the Fed Funds rate; credit cards, unsecured bank LOCs, some installment loans and most HELOCs will go up.
- What makes mortgage rates move?
o Bond prices (and yields in inverse direction) are influenced by supply and demand like any other investment
o US Treasury Bonds are considered the most secure non-cash equivalent investment in the world
o US Treasury Bonds are the preferred “safe” investment for large investors, insurance companies, sovereign wealth funds and foreign governments with surplus cash (China!)
o The US economy is gradually getting stronger while Europe and Asia are weakening
o European and Asian countries are increasing QE (lowering rates & currency values) while the Fed is decreasing QE
o The US Dollar strength on the world currency market
If you are in the Los Angeles area, have any questions or real estate sales or financing needs, feel free in contacting me.
Ron Henderson GRI, RECS, CIAS
President/Broker
Multi Real Estate Services, Inc.
Gov’t Affairs Chair – California Association of Mortgage Professionals
www.mres.com
ronh@mres.com
Specialist in the Art of Real Estate Sales and Finance
Real Estate market, mortgage rates, Los Angeles, San Fernando Valley, Conejo Valley, Simi Valley, Woodland Hills, West Hills, Calabasas, Chatsworth