Janet Yellen, the Chair of the Federal Reserve System, took a cautious stance regarding the Fed’s likelihood of raising interest rates in the near future. It appears that fears that the Fed would increase rates were unplaced, and rates that rose in anticipation of this action have fallen.
Interest rates on loans tend to be based on the federal funds rate, so interest rates tend to rise and fall based on the actions of the Federal Reserve. Yellen stated that until the economy is ready for an increase, the Fed will hold off. Before an increase would take place, the economy will have to show solid growth and inflation would need to approach two percent.
As a result of these announcements, interest rates have fallen across the board. Based on a national survey of large lenders, done by Bankrate.com, the 30-year fixed-rate mortgage dropped to 3.8 percent, down from 4.51 percent a year ago and 3.9 percent four weeks ago. Fifteen-year fixed-rate and 30-year fixed-rate jumbo mortgages also fell, with rates dropping to 3.04 and 3.92 percent, respectively.
It is believed that steadily falling interest rates are contributing to growth in the housing market. Home sales are the highest they have been in seven years, reaching an annual rate of 539,000, and according to the National Association of Realtors, previously owned home sales saw a 4.7 percent year-over-year increase. Mortgage applications have also risen sharply, with a 9.5 percent increase in just one week, per the Mortgage Bankers Association.