As expected, the Fed raised the prime rate by .25% to 5.25%, and one more is expected this year, along with 3 more next year. While it was expected, no one knew exactly when it would take place. This weeks mortgage rates climbed a little this past week, with today showing 5.125% for a 30YR fixed conventional loan.


Additionally the Feds are forecasting one more interest rate hike in the last quarter of this year and 3 in 2019.

The terms being used by the Fed Committee are; moving from an Accommodative policy to a Neutral policy. What does THAT mean? As we all know and are aware of, we’ve seen a rather hot market in the past few years. The price of mortgage money has been inexpensive and readily available, thus houses are getting snapped up fast. That demand has driven house prices up. This is considered an Accommodative market, some even interpret it as an overextended recovery. The Feds, understanding this are rolling in gradual interest rate increases. The Fed Committee is attempting to orchestrate a soft landing into the neutral zone. The neutral zone being a point in the market whereas the interest rates increase enough to ensure the economy does not overheat but yet isn’t squeezed into recession. This rate hike, along with the positive data on employment & unemployment contained in last weeks report is largely responsible for the increase in mortgage rates. Thats because when the jobs report has good news, this normally causes gains in the stock market, as funds flow into it, and out of mortgage backed securities. When data reports aren’t good, then typically the stock market drops, causing funds to flow from it & back into mortgage backed securities, causing rates to improve (go down). This is a very simplified version of what happens, but more times than not, this is the end result when data reports are either good or not good. Below is a piece about the strong data contained in last weeks report.

Strong Data

Since it raises the outlook for future inflation, the stronger than expected economic data released this week was bad news for mortgage rates, and rates reached their highest levels in many years.The biggest surprise in the data released this week came from Wednesday’s report on the services sector of the economy. The ISM national services index surged to 61.8, well above the consensus, and the highest level ever recorded since they began to track the data in 2008. Readings above 50 indicate that the sector is expanding. In their biggest move of the week, mortgage rates rose sharply following this news. Friday’s highly anticipated Employment report revealed that solid improvement in the labor market continued. Against a consensus forecast of 180,000, the economy gained just 134,000 jobs in September. However, upward revisions added 87,000 jobs to the results for prior months, bringing the total gains above the expected levels. Because job gains are volatile month to month, investors also look at longer-term trends, and the economy has added an average of 211,000 workers per month so far in 2018, above even the strong pace of 182,000 seen over the same period last year. In addition, the unemployment rate unexpectedly declined from 3.9% to 3.7%, the lowest level since 1969. Average hourly earnings, an indicator of wage growth, were 2.8% higher than a year ago, the same annual rate of increase as last month.

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