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Well, it's official. The Federal Reserve got off its duff and raised interest rates. But the question for mortgage hunters, as always, remains: "Where do we go from here?"
The old Magic 8-Ball says, "Outlook not so good."
In its action June 30, the Fed raised the Federal Funds Rate 25 basis points -- one-quarter of a percent. While that will add a few bucks to the monthly home equity line of credit payment and a few cents to the monthly credit card bill, it wasn't enough to put anyone's Las Vegas vacation or Manhattan gym membership out of reach.
What's next? If this light tap on the economy's brakes doesn't do the trick, more rate hikes may be necessary if the Fed hopes to accomplish its goal -- taming the wild American consumer.
"We've just had a party and the Fed is concerned that we don't get a hangover," says Diane Swonk, deputy chief economist at Chicago-based Bank One Corp. "My view is that inflation is starting to creep up, and over the longer haul we'll see a gradual acceleration in inflation, and with that a gradual tightening in credit conditions from the Fed.
"A year from now, that will likely mean we'll see significantly higher mortgage rates."
What's already happening: Mortgage rates already have begun to move up. The latest national survey of mortgage rates pegs the average rate for a 30-year fixed-rate mortgage at 7.72 percent. Less than two months ago, it was 6.95 percent. That change means $52 more a month on a $100,000 mortgage.
Since the interest rate surge, the housing market has cooled a bit from its red-hot levels. "Clearly, mortgage refinancing has already slowed and a lot of those funds have already been spent on cars or whatever, but we still have very tight labor markets ... and the money in people's pockets continues to grow," Swonk says. "These are important things and as much as interest rates are high, credit standards are still very loose."
So Swonk is among the experts predicting further Fed action. She sees another 25 basis point Fed hike in October and possibly more later. In mortgage hunter terms, that means a 30-year fixed-rate loan with no points would go for between 8 percent and 8.3 percent by this time next year.
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