The Home Buyer's Korner

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March 12th, 2015

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Average Mortgage Rates for March 12th, 2015

rates

Janet Yellen regardless of what Wall Street is pushing should wait longer before raising rates. Many on Wall Street believe the Fed could raise rates as early as June. 

The Fed’s policy committee meets this month, and may decide to speed up its timetable for raising rates, which it hasn’t done in almost a decade. 

Fed Chair Janet Yellen has long argued that a rate increase should be based on a vote of confidence about the U.S. economy and doing so would be in an effort to ensure the economy doesn’t get to overheat. 

My big concern is that too many workers are still struggling, wages remain stagnant and a rate increase will only make it worse for middle class and low-income wage earners. Ignoring the cracks would be foolish. 

Yes, it true that the national unemployment rate dropped to 5.5 percent last month for the first time since the financial crisis, but we have one of the highest rates of eligible worker not being counted in those numbers and the U.S. economy needs more time to get people back to work and create slack to boost wages. Raising rates now would lock in high unemployment among minorities and wage stagnation for the larger middle class. 

Even though the unemployment rates looks good on the surface, the rate for blacks is at 10.4 percent and Hispanics are at 7.3 percent. That’s still high for these groups and wages remain stagnant for everyone else. 

Raising rates in this environment isn’t unprecedented. It’s likely that the Feds may rely on history as its measure. When the Fed started lifting rates in 2004, unemployment for blacks was 10.2 percent and for latinos 6.6 percent, which is very similar to today numbers. While the Fed steadily increased rates between 2004 and 2006, unemployment did drop for both groups and the same thing happened when the Fed raised rates in 1994. 

History doesn’t always repeat itself in exactly the same way however, and the Fed should look closely at wages growth. It has barely moved during the six-year recovery. Wages grew by 2.2 percent in February and well below the Fed’s target for 3.5 percent growth. The economy did add jobs, but there’s still one major holdout to the recovery: WAGES.

Employers increased their payrolls by 295,000 workers in February, exceeding expectations, and the unemployment rate fell to 5.5 percent, its lowest point since the spring of 2008. But wage gains continued to lag, rising only 0.1 percent in February for private-sector workers after a reported 0.5 increase in January.

Some economists and business leaders say the Fed shouldn’t wait for wage growth to raise rates. Wages almost and I repeat almost always rise a few months after hiring really picks up and the expectation is that wages will pick up later this year. Moreover, many economists simply want to forgo a clear conviction of wage growth at 3 percent and argue that if the Fed waits past June it will be too late and they aren’t alone. The Fed strongly believes wage growth is just around the corner. If you’re fortunate enough and feel you’re in a position to buy a home now, it’s likely you’ll benefit most in mortgage rates now that later this summer.

Mortgage rates increased this week after two consecutive drops and appears they are heading higher. 

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