If you’re looking to buy a home, you’ve probably been paying close attention to mortgage rates. Over the last couple of years, they hit record lows, rose dramatically, and are now dropping back down a bit. Ever wonder why?
The answer is complicated because there’s a lot that can influence mortgage rates. Here are just a few of the most impactful factors at play.
Inflation and the Federal Reserve
The Federal Reserve (Fed) doesn’t directly determine mortgage rates. But the Fed does move the Federal Funds Rate up or down in response to what’s happening with inflation, the economy, employment rates, and more. As that happens, mortgage rates tend to respond. Business Insider explains:
“The Federal Reserve slows inflation by raising the federal funds rate, which can indirectly impact mortgages. High inflation and investor expectations of more Fed rate hikes can push mortgage rates up. If investors believe the Fed may cut rates and inflation is decelerating, mortgage rates will typically trend down.”
Over the last couple of years, the Fed raised the Federal Fund Rate to try to fight inflation and, as that happened, mortgage rates jumped up, too. Fortunately, the expert outlook for inflation and mortgage rates is that both should become more favorable over the course of the year. As Danielle Hale, Chief Economist at Realtor.com, says:
“[M]ortgage rates will continue to ease in 2024 as inflation improves . . .”
There’s even talk the Fed may actually cut the Fed Funds Rate this year because inflation is cooling, even though it’s not yet back to their ideal target.
The 10-Year Treasury Yield
Additionally, mortgage companies look at the 10-Year Treasury Yield to decide how much interest to charge on home loans. If the yield goes up, mortgage rates usually go up, too. The opposite is also true. According to Investopedia:
“One frequently used government bond benchmark to which mortgage lenders often peg their interest rates is the 10-year Treasury bond yield.”
Historically, the spread between the 10-Year Treasury Yield and the 30-year fixed mortgage rate has been fairly consistent, but that’s not the case recently. That means, there’s room for mortgage rates to come down. So, keeping an eye on which way the treasury yield is trending can give experts an idea of where mortgage rates may head next.
As the Federal Reserve's upcoming meeting may significantly impact mortgage rates, staying informed and prepared is crucial for anyone in the real estate market. Whether you're planning to buy or sell, understanding these changes is key to making strategic decisions. To effectively navigate the potential shifts in mortgage rates, partnering with experienced real estate professionals is invaluable. We can provide guidance tailored to your specific needs and goals in this dynamic market. Start your home search or sale with confidence by seeking expert advice and support. For more insights and assistance, begin your journey at our website, where you can find detailed information and expert guidance to help you make informed decisions in real estate..