Mortgage rates ticked up for the third week and the Federal Reserve delivered mixed signals on the U.S. economy.
The average cost of a 30-year, fixed-rate home loan was 3.73 percent, up from 3.68 percent a week ago. At this time last year, the average rate was 3.78 percent, according to Freddie Mac.
Will rates keep rising? That depends. Federal Reserve policymakers gave a mixed view of the economy this week and announced they wouldn’t raise their own benchmark short-term borrowing rate. While central bankers don’t control mortgage costs, they can influence them.
When Janet Yellen and her Fed posse raised benchmark rates in December, analysts figured the central bank would bump rates four times this year. A Fed rate hike is typically a vote of confidence in the economy. Generally when the economy is healthy, mortgages cost more.
But after the Fed acted last year, global financial markets hit the skids. Investors sought shelter in U.S. bonds, pushing interest rates and the cost of home loans down.
Three months later, the economy remains less than perfect, mortgages are cheap and Yellen & Co. said they’ll raise their benchmark rate only twice this year.
“The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate,” Yellen told reporters yesterday. “The federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run.”
Translation: Borrowing costs will stay low for a while.
That said, Fed policymakers aren’t really planning types and we can’t always count on them to do what they say they might. “Policy is not on a pre-set course,” Yellen said.
Translation: Like everyone else, Yellen’s team is watching to see what the economy does. If things stay on track, that’s good for everyone, even if it means slightly pricier home loans. The housing market can handle a gradual increase in borrowing costs.
“It is clear that conditions have neared the point that would warrant another rate hike,” said Curt Long, chief economist at the National Association of Federal Credit Unions, after yesterday’s Fed meeting. “The labor market is strong, inflation is improving and fears over global growth have dissipated somewhat.”