Since US markets started showing improvements in overall economic activity, the expectation of the interest rate hike began to build in the second half of 2016. The unemployment rate was little changed at 4.7 percent.
This might seem daunting, at first, but NerdWallet mortgage analyst Tim Manni confides: "For consumers now shopping for a mortgage to purchase a property or refinance an existing loan, shouldn't feel like a real shock to the system since the rate move has already been "baked" into the market".
Market watchers also pay close attention to the Fed's dot plot projections that show where each of the sixteen voting members think the Fed's policy rate will be headed in the coming years.
Elsewhere, market participants were also digesting comments by Chicago Fed president Charles Evans who told Fox News that the Fed was on track to raise rates twice this year and could be more or less aggressive depending on whether inflation picked up or not.
The widely anticipated Fed hike last week, only the third in almost 11 years, took the overnight fed funds rate to a target range of 0.75 percent to 1 percent.
United States stocks finished mixed on Monday as investors looked to speeches by U.S. president Donald Trump and Federal Reserve policy maker Charles Evans, following last week's rate hike.
These adjustable rates, he says, could rise as much as ¾ percent, which would increase the same metric as mentioned above (the monthly payment on a $200,000 mortgage) by as much as $84. The Fed's dovish language explains the market's muted reaction to its latest policy rate hike.
Michael Every, head of financial markets research Asia-Pacific at Rabobank said that "the idea that the U.S. will aim to export as much as it imports is an infinitely more important global paradigm shift than that from a boot to a penguin". Instead, both US and Government of Canada (GoC) bond yields traded lower after the announcement and this allayed fears that another round of fixed-mortgage rate increases might be imminent. Kashkari had said that he preferred to hold rates steady for now.
Variable-rate mortgage borrowers were less concerned about any immediate impact from the Fed's statement last week, but they too can take some comfort from the Fed's mostly dovish statement because the US dollar sold off following the Fed's announcement.
Five-year GoC bond yields fell by six basis points last week, closing at 1.21% on Friday. This is up from the same time last year, when the average thirty-year fixed mortgage rate was 3.68 percent.
The FOMC had previously raised the federal funds target rate to a range of 0.5 to 0.75 percent last December. As such, the spike in our fixed mortgage rates that some had feared did not materialize, and that means its steady-as-she goes for both our fixed and variable mortgage rates.