The Fed will hike rates this week.
The stock market is rallying to new records almost daily. And February Non-Farm Payrolls data show continued strength in the job market.
Plus, inflation is on the rise.
These factors and more point to an increase to the Federal Funds Rate, one of the Fed's levers with which it helps heat or cool the U.S. economy.
The good news is that mortgage rates don't track the Fed Funds rate -- not perfectly, anyway.
As a mortgage shopper, you need not fear a hike. Markets may have already priced that into today's mortgage rates.
But markets always seek to be six months or even years ahead of reality. That's why it could pay to lock in your rate before the Fed adjourns. The group is set to deliver its own projections for 2017-2018 rate increases.
If they veer from past predictions, mortgage rates could move wildly.Click to see today's rates (Jun 28th, 2017)
According to Freddie Mac, the average 30-year conventional fixed-rate mortgage increased 11 basis points (0.11%) last week, and now averages 4.21% nationwide.
Mortgage rates are up nearly 70 basis points (0.70%) since late October. The U.S. presidential election catapulted rates to multi-year highs.
But that doesn't mean rates will stay this high.
The mortgage rate market might be rising too far, too fast. A correction, therefore, is possible as 2017 marches on.
Mortgage rates are driven by free markets. Like the stock market, the market for rate-affecting bonds can lose value within a short period.
This causes rates to rise.
Mortgage rate shoppers have certainly witnessed this scenario play out over the past few months, but it wouldn't take very much for rates to come "back to earth."
But how realistic is that scenario? It's looking less and less likely.
Mortgage rates may have hit a new baseline -- a new normal. The Fed is on the defensive, protecting the economy from too much growth.
That's a marked shift from the group's policies over the past decade. Since the late 2000s, it has rolled out program after program to goose the economy and stave off recession.
At one point, Great Depression 2.0 was a real possibility.
Thankfully, the tide has changed. Now the Fed has a new problem: keep growth (and therefore inflation) in check.
The Fed's dual charter is to foster maximum employment and stabilize prices in the economy. In other words, the unemployment rate should be low, and inflation should be near 2% annually.
It can't raise the Fed Funds Rate too quickly: rising rates could eliminate jobs and put companies on the defensive.
But it can't be too slow to lift rates either. That could lead to uncontrolled inflation.
The Fed, then, is the "Goldilocks" of the U.S. economy. It seeks balance. Economic activity should be, well, just right.
The group has not increased its benchmark rate since its December 2016 meeting, just the second hike in a decade.
Now, a March hike is on the table, when just weeks ago, analysts expected no move until June.
A faster Federal Reserve could mean higher rates. It may be wise to secure a low rate soon.Click to see today's rates (Jun 28th, 2017)
The Federal Open Market Committee (FOMC), or simply "the Fed", adjourns its 2-day meeting on Wednesday at 2:00 PM ET.
A rate hike would be a big deal, and would dominate headlines.
But a less obvious report could move markets more than the hike or no-hike decision.
Four times per year, the Fed releases its own economic projections covering the unemployment rate, inflation, and yes, even predicting its own rate hike schedule.
The group last released its projections in December 2016. It called for three rate hikes in 2017, with a final Federal Funds rate between 1.25-1.5% by the end of the year, up from a range of 0.50-0.75% currently.
The market is already building in the future increases.
But what if the Fed starts predicting four hikes this year? That could send consumer mortgage rates skyward.
It would signal a hotter economy and greater risk of inflation than the group originally thought. The market would quickly anticipate the same, and price mortgage rates accordingly.
A strong economy is typically bad for mortgage rates. Inflation is higher, and investors would rather grab a greater return from stocks than bonds.
Mortgage rates are based on a type of bond -- mortgage-backed securities or MBS. So, if you were an investor, would you rather make 10% annually in the stock market, or be holding a mortgage bond that pays 4% per year?
So, mortgage interest rates need to rise to attract investors.
The good news is that rates are still very low, especially in historical perspective.
Conventional mortgage rates are in the low 4s -- which is about half of their average over the past 45 years.
Government-backed loan rates are even better. VA home loans can be had at rates about 0.25% lower than those for conventional loans. FHA and USDA home loans beat "standard" loan rates, too.
This week, we could see rates change, though. The meeting of the Federal Reserve is just one consideration. Fortunately, markets should be quiet until Wednesday, when massive movement is possible.
The following reports are most likely to move rates this week.
Need to buy a home or refinance soon? Early in the week could be your best bet.
Mortgage rates are still low -- for now. If you've been waiting to purchase a home or refinance one, consider moving up your timeline. Rates can change suddenly and without notice.
Get today's live mortgage rates now. Your social security number is not required to get started, and all quotes come with access to your live mortgage credit scores.Click to see today's rates (Jun 28th, 2017)
The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.
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2017 Conforming, FHA, & VA Loan Limits
Mortgage loan limits for every U.S. county, as published by Fannie Mae & Freddie Mac, the Federal Housing Administration (FHA), and the Department of Veterans Affairs (VA)