The Federal Reserve brought good news to the housing market at their latest FOMC meeting, according to a report from the California Association of Realtors (CAR).
The Federal Reserve announced that they will keep the target range of the fed funds rate at 5.25% to 5.50%.
“The central bank’s (unanimous) decision to hold its fed funds rate steady brought mortgage rates down to the lowest level since late September. With job growth slowing and consumers feeling less confident, rates may see more improvement in the coming weeks,” said the CAR report.
In its policy statement, the Fed repeated that in determining the extent of additional policy firming that may be appropriate, a range of economic factors will be taken into account.
“In addition, economic activity expanded at a strong pace in the third quarter, job gains are moderate but remain strong,” said the Fed report.
The Fed also noted that “Inflation remains elevated, and the policy-setting committee is strongly committed to returning inflation to the 2% target, “ and that “Tighter financial and credit conditions are likely to weigh on economic activity, hiring and inflation, but the extent of the effects remains uncertain.”
The Fed also noted, however, that it is prepared to adjust policy stance as appropriate, if risks emerge, to achieve (our) goals.”
Fed Chair Jerome Powell also suggested that the central bank was very close to ending the campaign of rate hikes saying that elevated longer-term rates in recent months could help contain inflation, without necessarily requiring further rate hikes
Powell also expressed confidence that overall price growth is heading lower even as the economy continues to grow, and said, “We will make decisions on totality of data, balance of risks”and that “the economy has expanded well above expectations.”
The Fed report also noted that the labor market remains tight, but supply and demand conditions for labor continue to come into better balance.”
Acknowledging that “Our restrictive stance is putting downward pressure on economic activity and inflation,” Powell also made it clear that if inflation pressure should accelerate in the months ahead, further rate hikes would be considered. Mortgage rates went down after the announcement and declined again the following day as the latest job data offered more evidence that the labor market is cooling.
Meanwhile, with the average 30-year fixed-rate mortgage remaining above 7.5% early last week, an increasing number of homebuyers opted to use adjustable-rate mortgages (ARMs) to finance their home loans, according to the latest weekly survey released by Mortgage Bankers Association (MBA). ARMs are generally considered riskier loans as their rates are fixed for shorter terms, but also offer more savings to borrowers as their rates are typically lower than rates for fixed-rate mortgages.
ARM loan applications increased almost 10% last week and have been gaining popularity as higher rates continue to impact affordability and purchasing power, said the CAR report. Their share has grown to 10.7% of all applications and has reached the highest level in nearly a year. With rates dipping in three of the last four days, said CAR, the ARM demand could see some leveling off in the immediate term but could rise again if rates start trending back up.
