The Fed’s New Game Plan

Despite the Fed’s tightening plan and a surging economy in 2018, interest rates have remained relatively steady over the last six months.  Recently, the Federal Reserve announced a new plan that will help support a low interest rate environment.  The Federal Reserve discussed their balance shet, reinvestment policy, and their plan of no rate hikes for 2019.

The Fed has mentioned that for 2019, it will not be moving quickly to raise the Federal Funds Rate in 2019.  The Fed Funds rate, which is the rate that banks charge to lend to one another will stay at 2.25%-2.5% for now.  Also, the Fed is currently letting about $50 billion dollars roll off their balance sheet, and beginning in May they will reinvest $15 billion of their “balance sheet” towards the purchase of treasuries per month.  On top of this, they will stop the reduction of their balance sheet come September and hold it instead of sell it.  This change of plans is very bond friendly and certainly points to a lower interest rate market by making mortgage bonds more attractive to investors, therefore helping to keep a lid on long term interest rates.


30-Second Update:  Jobs Report Exceeds Expectations/Wages Continue Higher

Despite a 35-day government shutdown, U.S. employers added 304,000 jobs in January, exceeding Wall Street’s expectation for an increase of 165,000 jobs.  The January increase represents 100 consecutive months of job additions!  Recently the Fed unanimously voted to keep the federal funds rate unchanged, along with a cautious approach to future interest rate hikes.  Josh Wright, the Chief Economist for iCIMS and former Federal Reserve staffer believes that, “The blowout jobs number could convince the Fed to reverse course before the end of the year.”

In addition to the exceptional jobs report, worker average hourly wage earnings in January rose 1.7% year-over-year, representing the largest gain since mid-2016.  Cleveland Fed President Loretta Mester commented, “This is a welcome increase.  It gives workers more purchasing power, but because the pickup has been in line with productivity growth and inflation, it has not added to inflationary pressures.”



30-Second Update:  No Rate Hike from Federal Reserve!


On Wednesday, January 29th, the Federal Reserve unanimously voted to keep their benchmark federal funds rate unchanged.  The rate will remain in the 2.25%-2.5% range after being increased by 25 basis points in December.  The Federal Open Market Committee (FOMC), which determines the Fed’s rate policy, announced, “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 to support these outcomes.”

Mortgage Rate Impact:

Mortgage rates have remained near its six-month lows recently, and keeping the federal funds rate unchanged should hold them near those levels.  The Fed has, however, previously indicated that they intend to raise rates multiple times this year.  Greg McBride, Chief Financial Analyst for advised, “use this as an opportunity to keep paying down debt, refinancing into fixed rates, or grab low interest rate offers.”

Stock Market Impact:

In reaction to the announcement from the Fed, the Dow Jones Industrial Average reacted favorably and reached its high for the day.



Home Values and Mortgage Volume Increasing

The Federal Housing Finance Agency recently released their monthly Home Price Index (HPI), and it showed that home prices rose 0.4% on average across the country for the month of November.  For the year, the HPI is up a large 5.8!  The HPI analyzes data based on single family homes that were purchased with conforming conventional mortgages.

Mortgage application data just came in, and it showed that applications to purchase a home are up 13% from this time last year.  At this level, application volume is nearing nine year highs!  Applications to refinance slowed slightly by 5%, but are still near their highest level since the springtime.   Refinance application volume was much lower a few months back and is slowly getting back to its highs, mostly due to the recent decline in mortgage rates.



30 – Second Update:  Homeownership Still Viewed as the American Dream. Purchase Mortgage Applications Reach 8 Year High!


According to a study done by the National Association of Realtors (NAR), 75% of non-homeowners and 90% of current homeowners said homeownership was an essential aspect to the “American Dream”.  The survey was conducted across twelve months of last year, and consisted of 64% homeowners, 27% renters, and 9% non-homeowners living with family members without paying rent.   Affordability in housing was the main reason holding back potential homeowners.  In the 4th quarter of 2018, however, only 43% of non-owners stated they could not purchase a home due to being in a position to purchase, which is a 6% drop from the previous quarter, in which 49% answered the same.

On top of the NAR report, data from the Mortgage Bankers Association (MBA) from the week of January 11th, purchase mortgage applications increased for the sixth time in the last eight weeks.  That index was up 9% on a seasonally-adjusted basis, representing the highest level since April 2010.   In addition, the Refinance Index increased 19% from its previous week to its highest level since March 2018.   These numbers are strongly correlated to interest rates pulling back from recent highs, as homeowners are looking to capitalize.   Mike Frantantoni, MBA Senior Vice President and Chief Economist, stated, “The spring homebuying season is almost upon us, and if rates stay lower, inventory continues to grow, and the job market maintains its strength, we do expect to see a solid spring market.”


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