Home buyers in Chicago and across the nation may still be thawing out from the recent Polar Vortex, but the outlook for locking in an affordable mortgage rate in 2019 is beginning to heat up.
After a two-day meeting of the Federal Reserve Board’s Open Market Committee on January 30th, the Fed said it would leave interest rates unchanged and promised in the future to be “patient” in evaluating the nation’s economic health.
“In light of global economic and financial developments and muted inflation pressures, the committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate,” the Fed said.
The Open Market Committee said it will maintain its target range for the federal funds rate at 2.25% to 2.5%.
As a result of the Fed effectively taking its foot off of the interest-rate peddle, the rate on 10-year Treasury bonds—the driver of long-term mortgage charges—eased to 2.69% from 2.71%. And Wall Street liked the news. The Dow Jones stock market average skyrocketed 434 points to close above 25,000.
On January 31st, Freddie Mac’s Primary Mortgage Market Survey reported that average 30-year fixed-rate loans remained relatively flat at 4.46% compared with 4.45% a week earlier, after weeks of moderating. A year ago, benchmark 30-year fixed loans averaged 4.22%.
Chicago-area lenders were charging a range of 4.256% to 4.57% on 30-year fixed-rate mortgages on January 31st, reported rateSeeker.com.
Fed Chairman Jerome Powell said that while the economic forecast remains strong, there are “cross-currents” and “conflicting signals” to consider, citing a slowdown in growth in major foreign economies.
Interestingly, the committee did not include any language in reference to “further gradual increases” as it has in the past, signaling to some that a decrease could be on the horizon.
Powell also said several political uncertainties—including U.S. trade tensions, Brexit and fallout from the government shutdown—have contributed to the Fed’s new patient approach.
In keeping with the cautious tone, the Fed also said it was ready to slow or even reverse the reduction of its $4-trillion bond portfolio, a sharp move away from its December pledge to reduce its holdings.
New data from Capital Economics, an independent macroeconomic research firm, suggests an oncoming economic slowdown that could push the Open Market Committee to slash the federal funds interest rate by 0.75% as early as 2020.
“With equity markets rebounding from their recent lows, economic growth solid, and core inflation close to 2%, we still think the Fed will raise rates once more, either at the April-May or June, 2019 meeting,” Capital Economics predicted. “Further ahead, however, we expect a sharp slowdown in economic growth will force the Fed to cut rates by 0.75% in 2020.”
If that scenario happens, Chicago home buyers likely would have an opportunity to lock in a 30-year fixed mortgage in the 3.5% to 3.75% range in early 2020, experts say.
Lower mortgage rates in 2020 could potentially be the boost the housing sector needs, experts say, because more and more lenders are reporting a decline in both loan origination and revenue volumes. However, rate reductions are often an indicator of a struggling economy, which also means consumer spending could weaken.
“My best guess is that rates in 2020 are more likely to be down than up,” predicted Tendayi Kapfidze, chief economist for LendingTree.
“Mortgage rates may be lower in this scenario, but typically home sales will drop with consumer spending,” said Ruben Gonzalez, chief economist for the Keller Williams real estate brokerage chain. “I would say we would likely see a steeper drop in home sales in 2020 if we get into a situation where the Federal Reserve is actively dropping rates.”
Gonzalez said what happens in 2020 is largely going to be dictated by “how the macroeconomic outlook changes” over the year. “Without a recession, we think home sales are likely to flatten out at a slower pace and price growth likely will as well.”
For more housing news, visit www.dondebat.biz. Don DeBat is co-author of “Escaping Condo Jail,” the ultimate survival guide for condominium living. Visit www.escapingcondojail.com.