Rates are going up!

The Federal Reserve this past month lifted its benchmark rate by a quarter of a percentage point, the second hike this year.  A majority of economists now expect two more hikes this year.  The Federal Reserve lifted the federal funds rate, which helps determine rates for mortgages, credit cards, and other borrowing to a range of 1.75% to 2%. 

The decision reflects an economy that’s getting even stronger.  Unemployment is at 3.8% the lowest since 2000, and inflation is creeping higher.  The Federal Reserve is raising rates gradually to keep the economy from overheating.

Higher borrowing costs

Mortgage rates have been climbing. The average rate on a 30-year fixed rate mortgage climbed to 4.66% this year in May, the highest in seven years, before falling slightly in recent weeks.

Home mortgage rates tend to move with the bond market, but rates can also rise because of a higher federal funds rate. A higher rate makes it more expensive for banks to borrow money, which can translate into higher borrowing rates for consumers.

In the bond market, too, investors are showing signs of concern about higher inflation and faster rate hikes. The yield on the 10-year Treasury note recently hit the highest level in almost seven years.

The Fed’s decision Wednesday was driven by “indications that inflation is right around the corner,” said Jason Reed, an economist and finance professor at the University of Notre Dame’s business school.

Inflation has been mysteriously low during the long economic recovery. But it has finally passed 2%, the level the Fed considers healthy.

The Fed’s preferred measure of inflation, which strips out food and energy prices, climbed in May to 2.2% and registered the biggest annual jump in six years. The Fed expects inflation higher than 2% over the next two years, according to its latest projections.

If you are currently renting, now is the time to buy, interest rates will continue to increase.  If you are a homeowner considering selling, you want to be on the market now when all the Buyers that can buy now will buy in anticipation of potential upcoming changes in the real estate market. As always, we are at your service. Call us at   561-880-5696  or email us at brian@perryhomesolutions.com with any questions you may have.