Fed makes its plans official, rates expected to climb

The Federal Reserve finally made it official and will start reducing its bond purchases by $15 billion each month starting later in November. Since the onset of the pandemic, the Fed has been purchasing $120 billion per month worth of Treasury notes and mortgage-backed securities (MBS) to bolster the economy and the housing industry. Starting this month, the Fed will reduce its Treasury purchases by $10 billion and reduce its MBS purchases by $5 billion. This was a unanimous decision by the Federal Open Market Committee (FOMC) members. 

The market reaction was positive with both stocks and government bond yields moving slightly higher. Markets have been expecting this news for a while so this was not a surprise move that would have spurred volatility. 

Inflation is still an issue, however, and while the Fed changed its tone regarding severity and how long the trend is expected to last, the group held firm in its belief that this is "transitory"—meaning the Fed believes the inflation we are seeing is temporary and still a side effect of pandemic issues. The Fed's post-meeting statement said, "Inflation is elevated, largely reflecting factors that are expected to be transitory. Supply and demand imbalances related to the pandemic and the reopening of the economy have contributed to sizable price increases in some sectors."

Fed Chairman Jerome Powell is steadfast in his belief that the supply chain is the current major problem but that inflation related to that problem will start to subside in the middle part of next year. 

The FOMC members also unanimously voted against raising the overnight lending rate from near 0%. While the economy is showing improvements, according to the Fed's statement, there is still a long way to go. The group added that tapering of bond purchases and raising interest rates are not tied together adding "there is still ground to cover" before the Fed sees progress that is indicative of reaching its economic goals. 

One sector that has been sorely lacking in improvement has been the labor sector. Both September and August showed pitiful numbers regarding job growth in non-farm public payrolls. That was not the case in October as the Labor Department reports 531,000 jobs were added with the unemployment rate going down to 4.6%. Hospitality and leisure services have seen the largest job growth adding 2.4 million jobs year-to-date and 164,000 in October. 

ADP's private payrolls report showed another month of better than expected growth with 571,000 jobs added in October. This is well above the estimate of just 395,000 and up from September's revised number of 523,000. The hospitality sector also led the way with 185,000 jobs and businesses with more than 500 employees saw the most growth with 342,000 new hires.

Have home prices peaked?

The latest S&P CoreLogic Case Shiller National Home Price Index showed 19.8% price growth annually in August, matching July's number. That is still an eye-popping number, but the fact that home price growth did not go up and instead remained stable might be a positive sign for future homeowners that prices may have finally peaked.

Mortgage rates also dipped slightly in the last week with Freddie Mac's 30-year fixed-rate mortgage average dropping to 3.09%. However, analysts at Freddie Mac say decreases in rates won't be the trend. "While mortgage rates fell after several weeks on the rise, we expect future upticks due to stronger economic data and as the Federal Reserve pulls back on its stimulus. That said, the housing market remains favorable for consumers, as rates remain below pre-pandemic levels and continue to support sustainable purchase and refinance opportunities."

Keep in mind, this average is only for 30-year fixed-rate conventional, conforming mortgages. Depending on the loan you apply for, take for example a first-time homebuyer looking to get an FHA loan, that is going to create a different set of circumstances than if you were applying for a conventional loan. It's always best to talk through your options with a Movement Mortgage loan officer before you look at a house to buy in order to ensure you're putting yourself in the best financial situation.