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Are we closer or Further away?

Are we closer or Further away?

December 5th, 2017 | Federal Reserve, Interest Rates, Mortgage, Loans

This week we will see the release of the November employment numbers. The key question we will be watching is whether we will be moving closer to a rate increase or further away with respect to the Federal Reserve Board’s meeting next week. According to the minutes of the last meeting, the Fed’s members had a healthy debate about the threat of inflation. Inflation “hawks” were worried that the tight labor market carries a risk that rising wages will quickly increase inflationary pressures.

On the other hand, the “doves” feel that the absence of large wage increases could mean that if the Fed raised short-term interest rates, it could cause inflation to stay too far below the Fed’s target of 2.0% for a prolonged period of time. Thus, we will not only be looking at the number of jobs created but also looking for any sign that wage inflation is starting to take off. Judging by the economic reports we have seen in the past month, market analysts are still counting on a rate increase.

Speaking of higher costs, the Federal Housing Agency raised the limits for conforming mortgage loans for 2018. This affects the size of loans allowed under Fannie Mae and Freddie Mac mortgage programs. The new limits are $453,100 for 1-unit properties, with a maximum of $679,650 in high-cost areas. While we have talked about higher housing prices making purchasing less affordable, the higher loan limits are one of the benefits of higher housing prices. Owners of homes gain more equity when prices go up. And these higher conforming limits will allow first time home buyers to purchase more home with a smaller down payment.

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