We’ll Believe it When We See It

No one was surprised.

On Wednesday, Federal Reserve officials again decided to hold the federal funds rate between 0.25% and 0.50%. Thus, they once again delayed an interest-rate hike that most everyone at the beginning of the year thought would have occurred by now.

The vote wasn’t close – nine-to-one to keep rates where they are. That said, the Fed did leave the window open for a rate increase when officials meet again in late September.  In the statement that accompanied the latest decision to maintain the status quo, the Fed noted a “strengthened” labor market and that household spending was “growing strongly.” It’s also worth noting what the Fed didn’t say. There was no mentioned of the UK Brexit vote in the statement.

Many traders parsed the Fed’s words and arrived at a similar conclusion – the window is open. Traders in fed funds rate futures contracts are now betting a 24% chance a rate increase will occur in September. These are the highest odds given since the first quarter of the year. These same traders are giving 50/50 odds that we will see at least one rate increase before the end of December.

It could happen, of course, but we remain skeptical. Traders are a notoriously schizophrenic lot (as are Fed officials). If next week’s employment report for July disappoints, the odds given for a rate increase could be reduced to single digits. If the report goes the other way, so will the odds.

We wouldn’t call the economy a one-trick pony, but let’s be honest, housing has been performing most of the tricks. Seven years after the recession officially ended, normal growth – 3% annual gross domestic product growth – remains elusive. Fed officials have all but thrown in the towel on 3% annualized growth. Without the housing recovery, we can only guess what the annual growth rate would be. Housing is more interest-rate sensitive than many other sectors of the economy. Fed officials will tread carefully on raising interest rates. No one wants to stall the one engine – housing – that’s hitting on all cylinders.

With no meaningful news to report in recent weeks, mortgage rates have drifted higher, though not egregiously so. For most borrowers, a quote around 3.5% on the conventional 30-year loan has been the norm for the past week. After the Fed’s statement on Wednesday, mortgage rates actually drifted a bit lower.

With the Brexit vote digested, the US presidential candidates settled, the lack of anything of importance pending domestically or internationally, we don’t expect to see much movement in lending rates until September (when action in financial markets usually kicks into a higher gear).  In other words, the lending rates we have now are likely the lending rates that will prevail for the next four or five weeks.

Then again, we do have two employment reports between now and Labor Day. These two reports, more than most other scheduled reports, have the potential to move lending rates one way or the other.

Information provided by Jessica Regan.

Search all Harrisburg PA homes for sale.

When you are buying or selling property in today's Harrisburg PA real estate market, it's important to have confidence in your real estate professional. Don’s commitment as your Harrisburg PA REALTOR® is to provide you with the specialized real estate service you deserve.

When you are an informed buyer or seller, you'll make the best decisions for the most important purchase or sale in your lifetime. That's why Don’s goal is to keep you informed on trends in Harrisburg PA real estate. With property values continuing to rise, real estate is a sound investment for now and for the future.

As a local area expert with knowledge of Harrisburg PA area communities, Don’s objective is to work diligently to assist you in meeting your real estate goals.

If you are considering buying or selling a home or would just like to have additional information about real estate in your area, please don't hesitate to call me at (717) 657-8700, complete my online form, or e-mail me at don@donroth.com.