The Fed announced today that they are going to hold the Fed Funds rate unchanged at .75 – 1%. The Committee cited a weaker economy with GDP growing at an anemic rate of 0.7% in the first quarter.
This is an unexpected windfall for both buyers and sellers. 30-year mortgage rates have once again broken the 4% level, trading as low as 3.75% in the current market. If your time horizon is 10 years and under, the 10/1 ARM is currently 3.25%, or 50 basis points lower than a 30 year fixed rate mortgage. Here are current mortgage rates:
- 5 year ARM – 2.875%
- 7 year ARM – 3.00%
- 10 year ARM – 3.25%
- 15 year FIXED – 3.25%
- 30 year FIXED – 3.75%
Clearly, you need to check with your own lending institution to confirm levels, given your unique credit profile. That said, these mortgage levels offer a wonderful opportunity to lock in 10 to 30-year funding at very attractive levels.
Although the trend towards higher rates has been on the horizon for 6 to 12 months, this interest rate reprieve may be short-lived. Investment activity in the US has picked up and the pending tax reform would turbocharge the growth activity of the overall economy. If repatriation of $1 to $3 trillion of off-shore monies becomes a reality and the combination of the corporate activity with the associated tax windfall should create significant tailwinds and boost inflation well over the 2% benchmark. Under this scenario, the Fed will be playing catch up and we will see a Fed Funds rate increase of 50 to 100 basis points a quarter, versus annually.
Attractive funding translates into purchasing power. The market and Fed actions give the consumer a second bite at the apple. If you want to get a better idea of what this means for your purchasing power give Brian Meier or Doug MacFaddin a call at 212-500-7054.