The Fed voted not to raise policy rates at this week’s meeting, but did signal that they may raise rates at December’s meeting if economic improvement continues.

Jobless claims were up slightly, but layoffs were at a 5-month low. A strong non-farm payroll report could fuel speculation that the Fed will raise rates in December.

Consumer spending is up and factory orders rose for the 3rd straight month. As the economy heats up, inflation could become an issue and bring higher rates.

Mortgage rates barely nudged in Freddie Mac’s latest Primary Mortgage Market Survey, with mortgage rates remaining near the lowest level of the year and the lowest level in nearly three years, as the chart below shows.

The 30-year fixed-rate mortgage averaged 3.59% for the week ending April 21, up from last week’s when they averaged 3.58%. A year ago at this time, the 30-year FRM averaged 3.65%.

In addition, the 15-year FRM this week came in at 2.85%, down from last week when it averaged 2.86%. In 2015, the 15-year FRM averaged 2.92%.

The 5-year Treasury-indexed hybrid adjustable-rate mortgage averaged 2.81% this week, falling from 2.84% a week prior. A year ago, the 5-year ARM averaged 2.84%.

“Volatility in financial markets subsided over the past week, allowing Treasury yields to stabilize. As a result, the 30-year mortgage rate was mostly flat, up only 1 basis point to 3.59%,” said Sean Becketti, chief economist, Freddie Mac.

“The release of March’s existing-home sales report, which shows monthly growth at 5.1%, suggests homebuyers are taking advantage of low mortgage rates as the spring homebuying season gets underway,” Becketti added.

“Long-term Treasury yields continue to drop, dragging mortgage rates down with them. Turbulence in overseas financial markets is generating a flight-to-quality which benefits U.S. Treasury securities. In addition, sagging oil prices are capping inflation expectations. The net effect on the 30-year mortgage rate was a 5 basis point drop.”– Sean Becketti, chief economist, Freddie Mac

Even though we experienced the worse New Year opening of the stock market, mortgage rates are still stable. The outlook for 2016 US economy is optimistic.

• The U.S. economy passed a major psychological threshold as the Federal Reserve closed the door on the extraordinary measures put in place to combat the financial crisis. With the quarter-point increase of its overnight lending rate, the Fed signaled that the economy has finally returned to normal operating levels. Though some sectors still face headwinds, broader economic measures including employment, retail sales and even home prices have largely returned to healthy performance standards. The Fed’s policy-setting committee reiterated that it will maintain a gradual pace of rate increases, aligning actions with key indicators such as labor market conditions, inflation and international developments.

• While short-term lending will be influenced by the Fed’s move, long-term interest rates will face little upward pressure in the immediate future. As 2016 progresses, the cost of long-term debt could see upward pressure, but this will be influenced as much by domestic and international confidence as by the central bank’s actions.

• The move by the Federal Reserve will likely benefit commercial real estate investors, more because of the message it conveys than the influence of the rate change itself. By raising the rate for the first time since 2006, the Fed
  has finally expressed its confidence in economic growth, potentially opening the door to increased consumption and business investment. These positive trends would benefit all commercial real estate sectors as household formations escalate and increased discretionary income supports demand for housing, retail goods and business services.

• The tempo and sustainability of economic growth that swayed the central bank represent a decidedly positive development for the office sector, and industrial properties will also benefit from this trend. Additional hiring will generate new office space demand and put downward pressure on vacancy. Also, incremental demand may also emerge in interest-rate-sensitive financial services businesses, contributing to a projected decrease in the U.S. vacancy rate next year. In the industrial sector, a more robust pace of economic growth stemming from higher consumption will stimulate additional space demand from retailers. However, the rate increase will likely also strengthen the dollar, restraining U.S. companies with significant export business.

• A solid pace of household creation accompanies an economic expansion and will generate new demand for apartments in the near term. U.S. apartment vacancy will fall this year to 4.2 percent and will rise nominally in 2016 as elevated completions narrowly outpace net absorption. Also, the Fed’s benchmark rate most directly affects consumer borrowing for items that include residential mortgages. Any additional tightening in monetary policy that suppresses single-family homebuying and maintains a low rate of homeownership will provide a supplemental lift for the multifamily sector.

Above are credit of  Marcus & Millichap. The information contained herein was obtained from sources deemed reliable. Every effort was made to obtain complete and accurate information; however, no representation, warranty or guarantee to the accuracy, express or implied, is made.