Federal Reserve Case Study
On Wednesday, The Federal Reserve increased interest rates by a quarter of a point: This increase in conjunction with the rate increases over the next several years are likely to move through the U.S. economy, slowly increasing mortgage rates.
Expect Small, Gradual Rate Increases
However, Federal policymakers stress that these increases will be small and gradual; furthermore, should the economy falter, policymakers stress that they will pull back so as to alleviate the impact on businesses and consumers. It is expected that the central bank will also begin to gradually increase rates. Moody’s Analytics states that even a mere 1 percentage point increase over the next 12 months could inhibit monthly job gains and economic growth for the following …show more content…
At an interest rate of 3.9 percent, the monthly payment on a 30-year fixed $200,000 mortgage is less than $950: The same mortgage at a 6 percent rate would cost $1,200 a month.
Economic Growth and Steady Jobs Support the Housing Market
Steady jobs and economic growth ensure that the housing market of today receives support from much more than just a low interest rate. Moreover, 10-year Treasury note yields are used to price 30-year mortgages: These notes rise as the short-term rates increase; however, their rise is not quite as steep.
The Connection Between 10-Year Treasury Bonds and 30-Year Mortgages
Although the market for the 10-year Treasury bonds is effected by short-term interest rates, this is not the only factor effecting these bonds. This past fall, the economic turmoil in Europe and China caused the 10-year Treasury prices to increase, meanwhile, interest rates fell. This, despite the fact that the majority of investors believed that interest rates would be increased in September; thus, demonstrating that market forces also push mortgage rates. Consider that even without short-term interest rates being adjusted by the Fed, 30-year rates have floated between 4.43 percent to 3.67
Expect Small, Gradual Rate Increases
However, Federal policymakers stress that these increases will be small and gradual; furthermore, should the economy falter, policymakers stress that they will pull back so as to alleviate the impact on businesses and consumers. It is expected that the central bank will also begin to gradually increase rates. Moody’s Analytics states that even a mere 1 percentage point increase over the next 12 months could inhibit monthly job gains and economic growth for the following …show more content…
At an interest rate of 3.9 percent, the monthly payment on a 30-year fixed $200,000 mortgage is less than $950: The same mortgage at a 6 percent rate would cost $1,200 a month.
Economic Growth and Steady Jobs Support the Housing Market
Steady jobs and economic growth ensure that the housing market of today receives support from much more than just a low interest rate. Moreover, 10-year Treasury note yields are used to price 30-year mortgages: These notes rise as the short-term rates increase; however, their rise is not quite as steep.
The Connection Between 10-Year Treasury Bonds and 30-Year Mortgages
Although the market for the 10-year Treasury bonds is effected by short-term interest rates, this is not the only factor effecting these bonds. This past fall, the economic turmoil in Europe and China caused the 10-year Treasury prices to increase, meanwhile, interest rates fell. This, despite the fact that the majority of investors believed that interest rates would be increased in September; thus, demonstrating that market forces also push mortgage rates. Consider that even without short-term interest rates being adjusted by the Fed, 30-year rates have floated between 4.43 percent to 3.67