Improving economic indicators mean the economy is beginning to heat
up. While momentum is good, it is the Fed’s job to ensure the economy does
not get over-heated. Equity markets are up more than 50 percent from their
lows in March. Jobless rates are slowing. Consumers are beginning to spend
more. As a result, the Fed has begun indicating it would take measures to move
key rates, like mortgage rates, higher. Here are some specifics:
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The Fed made a decision to hold the target range for its key bank lending rate
at a record low between zero and 0.25 percent but indicated this range cannot
be held permanently. During the week ending October 1st, rates on 30- and
15-year fixed mortgages dropped to the 4’s, representing the lowest rates since
this May. Economists predict that rates will remain at record lows through the
rest of this year. The window of opportunity for homeowners looking to buy or
refinance at these historically low rates is now.
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Homes values are rising due to low borrowing costs and the first-time homebuyer
tax credit. The tax credit is due to expire before the end of the year.
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Consumer savings rates are at recent highs. While higher interest rates
increase the costs of financing purchases, they also increase the income from
the higher savings rates, which assist those on pensions and fixed incomes.
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The Banking environment has stabilized, providing additional confidence within
the industry. Seeing better balance sheets, the Fed is more willing to
charge the Banks higher rates for the money, which ultimately is lent to
consumers for things like homes, cars, and other large purchases.
Interest rates are always both a good and bad news story. It is a good idea to
lock in the lowest rates now on your current loans so you can enjoy increased
savings after the holidays.
