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Mortgage rates couldn't decide on a direction this week in the national survey of large lenders, as the 30-year fixed-rate held at 7.70 percent. The 15-year fixed-rate gained 2 basis points to 7.35 percent and the 1-year adjustable rate dropped 6 basis points to 6.43 percent. A basis point is one one-hundredth of a percent.
So what will the Fed's decision to raise rates by 25 basis points mean for mortgage shoppers in 1999?
Very little.
While 1-year adjustable rate mortgages and variable rate home equity lines of credit each will creep up 25 basis points, there's likely to be little impact on 30-year fixed-rate mortgages. Rates may even swing down slightly.
"It certainly takes the heat off," says Jim Coons, chief economist at Huntington Bancshares. "It creates the opportunity for a dip in mortgage rates."
So all of you anxious mortgage shoppers out there can take Alan Greenspan's photo down from that dartboard.
"What the Fed did yesterday was already discounted in the market," says David Orr, chief economist at First Union. "If it goes up in the next couple of weeks through the end of the year, it will be because of inflation numbers.
"People are coming to understand that the enemy of mortgage rates is not the Federal Reserve Board, it's inflation."
Mortgage shoppers learned this lesson the hard way in October when the Producer Price Index, which measures inflation at the wholesale level, and the Consumer Price Index, which tallies the retail cost of everything from groceries to haircuts, both showed upward trends. A couple of weeks later, the interest rate on 30-year fixed rate mortgages touched 8 percent for only the second time since April 1997, according to the national survey of large lenders.
As for Alan Greenspan and the Gang, it looks as if they've had their say as far as rate changes go in 1999. It's unlikely that the Fed would consider raising rates at its Dec. 21 meeting amid the Y2K hoopla. So the federal funds rate and federal discount rate, 5.50 percent and 5 percent respectively, will stay put into the new millennium. The Fed is also likely to maintain its neutral "bias" toward interest rates. That means the agency doesn't see a need to raise or lower rates in the immediate future.
"Normally there are pressures at the end of the year and this year's there's going to be a lot more going on -- a lot more nervousness going on," Coons says. "I think the chairman would prefer to do nothing. He'd probably prefer not to have a meeting."
The Fed's first policy-setting meeting in 2000 is in early February. Many experts expect little or no change in rates at that meeting.
"My hunch is they won't do anything then unless they have to," Orr says.
What would make them have to? Concerns over a super-tight labor market that could cause inflation to surge for one thing. That would happen if companies have to raise wages too much in order to attract workers. Firms typically raise the prices they charge for their products to compensate. The Fed cited labor market concerns in explaining its decisions to raise rates on Aug. 24 and Nov. 16.
The average monthly payment on a $100,000, 30-year fixed-rate mortgage held steady at $713. Payments on a $100,000, 15-year loan inched up to $919, a move of $2.
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